What Are Tax Considerations in High-Asset Divorce Settlements?

New Jersey uses the law of equitable distribution to divide marital property. Although any divorce can be complex in nature and present its own unique issues, there may be more challenges when the divorcing couple has a high net worth. Dividing assets alone is just part of the challenge. You must also factor in additional things that can affect the value, such as taxes. High-asset divorces can be more difficult to resolve, but an experienced family law lawyer can help you anticipate potential issues.

Capital Gains Taxes

Not every asset has the value that it may seem to have on its face. If the purchase price is less than the current valuation, you may owe taxes to both the state and federal governments. Depending on when you purchased the asset, capital gains taxes could take a large amount of its value. These tax obligations could apply to both investment securities and tangible property, such as real estate. You need to be careful to account for capital gains taxes when you are trading assets, as opposed to splitting them down the middle because they can reduce the value of what you are receiving.

Retirement Accounts

Retirement accounts also carry heavy tax implications, especially if you have contributed with pre-tax dollars. These accounts are often on a tax-deferred basis, meaning that you would pay taxes when you withdraw money in the future. In addition, any early withdrawals carry a penalty. When you are dividing retirement assets, you need to account for future tax liabilities. To avoid tax liabilities right now, you would need a Qualified Domestic Relations Order (QDRO) to properly divide and transfer interest in retirement accounts.

Alimony

In a high-asset divorce, there is a chance that one spouse may be paying alimony to the other. In the past, the paying spouse was able to deduct the amount of alimony from their taxes. However, the law changed in 2017, and alimony payments are no longer tax-deductible. At the same time, the receiving spouse no longer needs to pay tax on alimony. If you are in a position where you will need to pay spousal support, you need to consider how a lack of tax deductibility will affect your bottom line.

Business Valuations

A business may be a part of the marital estate that needs to be divided. It is often not practical to have both spouses continuing as owners of the business and in roles with the company. Thus, the spouse who is remaining as owner of the business would need to pay the other one for their interest. Then, there may be disputes over the valuation of the business, with the one who is slated to receive money claiming that the company is worth more.

You may incur tax obligations upon the transfer to or receipt of property from your spouse. The last thing that you want is to be taken by surprise. You may even be able to structure the divorce and any transfers of property in a way that helps you minimize your tax liability.

In a high-asset divorce, it is essential that you get legal help from an experienced lawyer. They would likely work with a forensic accountant to get the full financial picture and understand how tax obligations may affect your situation. Never agree to or discuss anything with your spouse about dividing assets without first seeking the advice of a divorce lawyer.

Contact the Red Bank Divorce Lawyers at Sanvenero & Cittadino Attorneys at Law Today for Questions Regarding Your Case

The Red Bank divorce lawyers at Sanvenero & Cittadino Attorneys at Law can provide you with the strategic counsel that you need when there are assets at stake. We can review your case and help you with a strategy to achieve the best possible outcome in your divorce. You can schedule a free initial consultation with one of our divorce lawyers by calling us today at 732-743-9665 or by filling out our online form. With our office located in Red Bank, New Jersey, we proudly serve clients in Monmouth County, Middlesex County, and Ocean County.