Those who are getting divorced need to go through a checklist of topics. They need to discuss which assets are subject to division and which are not. They need to go over how to divide the assets that are divisible and review retirement accounts. If one or both own a business, they need to address the business interest.
This already seems like a lot, but even with this checklist, one important topic is missing: taxes.
Do taxes really apply during divorce?
Whenever there is a transfer of assets, Uncle Sam wants a cut. Often, when anyone sells or transfers a property, taxes apply. Thankfully, the Internal Revenue Service (IRS) generally does not apply tax to property divided as a part of the divorce.
But there are some exceptions.
Take the family home. Although taxes do not apply if the divorcing couple chooses to transfer the property to one party to the divorce, taxes can still have an impact in the big picture. This is particularly true if the party who now owns the home intends to sell it shortly after the divorce. At that point, taxes will apply. Those who are taking the property with plans to sell may be wise to consider selling the property prior to the divorce. This can mean both parties take on that financial burden that comes with any tax implications instead of just leaving it to one.
Spousal maintenance is another example. In some states, such as New York, a recipient of spousal support must generally claim that support as taxable income. Taxpayers will also need to determine their new filing status and, if children are present, who claims the children as dependents on tax returns.
These are just a few conversations to have about taxes when going through a divorce. An attorney experienced in property division can review your situation and help guide you through these and other important discussions.