People in Massachusetts may have seen a recent article about the pitfalls of property division during a divorce settlement. During an emotionally difficult and volatile time like a divorce, people have a lot of things to think about and a lot of headaches and heartaches to deal with, so tax consequences might not be the first concern on people's priority lists during a separation. However, by paying attention to a few minor details, divorcees can save themselves big bucks down the road.
That is why in addition to knowledge of typical family law subjects such as divorce, child custody and spousal support, it's important to have counsel that is familiar with the tax implications of property division.
In Massachusetts, assets in retirement accounts, social security, military pensions and other employee benefits are subject to property division at the end of a marriage. This can pose a major problem, though, since these assets are often contained in tax-deferred accounts. Splitting them 50/50 isn't always an option, and simply liquidating them and splitting the proceeds as cash can mean having to pay disastrous tax penalties, as much as 50 percent when it's all said and done.
Many couples who own stock, business holdings and real estate also face similar issues, so splitting assets based solely on book value doesn't always make sense, and may not even equate to an equitable distribution in the long run.
The fact is there is no easy answer to these concerns because every couple's divorce has its own unique set of circumstances. But keeping in mind the tax consequences of each decision can help both sides get the best possible deal.
Source: Investors.com, "Financial Advisers Help Split Assets During Divorce," Gary M. Stern, Jan. 25, 2013