Dealing with the Tax Consequences of a High Asset Divorce
Are you facing a divorce? Expect all aspects of your life to change. This is particularly true if you are part of a high-asset couple.
Florida law states that fair and equitable is how assets are divided. With a high-asset couple, the division and tax implications can be more complicated by the valuation of a business, marital property, assets, or future income.
You will want to fully consider the implications of your tax liability by working with an experienced family law attorney.
Crystal Collins Spencer has decades of helping spouses involved in a high-asset divorce, as the tax consequences will now be on your shoulders as you file as a single or head of household.
Transparency and Divorce
High-asset divorces have special considerations. Everyone must put all of their cards on the table and be transparent about their assets, including, but not limited to, bank accounts, both domestic and offshore, property, pensions, art, and jewelry.
Unfortunately, some high earners think the rules do not apply to them. Instead, they may conveniently hide assets in little-known places and then file inaccurate and outright false information on the required financial disclosure documents.
This is a very serious mistake. Saving some money may cost you more and could even bring perjury charges and jail time.
Another mistake is for one spouse to withdraw funds from a joint bank account. Technically, they are joint marital property and belong to each spouse equally.
If one of the spouses has filed for divorce, an injunction may be in place that prevents you from withdrawing money. As a result, that spouse could be facing criminal contempt charges.
Assume any financial moves you make at the last minute to deprive your former spouse will be frowned upon by the court.
Family Law Attorney Crystal Collins Spencer has seen the creative accounting tactics of high-net-worth individuals who think the rules do not apply to them.
They are very much mistaken when facing a seasoned family law professional who understands the tricks of the trade.
Tax Consequences in a High Asset Divorce
There will be tax consequences to a high-asset divorce that lawyers on both sides should consider before entering into a divorce settlement. For example:
Alimony or Spousal Support – Once upon a time, alimony was deductible from the payer’s taxes. If he made $200,00 a year and had to pay $50,000 in alimony, he could show his income was $150,000.
Following the 2017 Tax Cuts and Jobs Act (TCJA), alimony is no longer deductible for the greater earner. Nor is it taxable as income to the receiver.
Because of TCJA, a dependency exemption for children can no longer be a tax deduction.
This new dynamic may significantly alter how alimony is negotiated into the final picture. Obtaining alimony may become more challenging because of the higher tax rates that apply, and the individual paying alimony will no longer be able to receive an alimony deduction.
The bill is not retroactive and only applies to divorces finalized after January 1, 2019.
Dividing Assets
Retirement accounts must often be divided in a high-asset divorce. The higher earner may use money from a 401(K) to pay alimony. To transfer retirement assets, a tax-free Qualified Domestic Relations Order (QDRO) will minimize the tax implication of moving retirement assets to the other spouse.
Capital Gains can be minimized when offset by capital losses or transferring those assets to the spouse who is the lower earner.
Other Considerations
- Monies acquired before marriage are generally not subject to equitable division.
- Assets you inherited or were gifted to you are not divisible if you kept them in a separate fund from your spouse.
- Legal fees related to your divorce are no longer deductible as they were a few years ago. Instead, they are regarded as personal expenses.
- Children are considered dependents for the spouse who has physical custody. Tax credits are available to that parent. Child support payments are not tax deductible for the parent who pays or counted as income for the parent who receives them.
- Your divorce settlement is not taxable, provided it was transferred under the divorce settlement and within six years of the end of the marriage.
Your Florida Divorce and Family Attorney
Crystal Collins Spences has spent over 35 years representing divorcing couples involved in high net-worth divorces. She is highly respected in the field and provides sound, aggressive strategies in your best interest in your high-asset divorce.
Let her move your life forward by arranging a consultation in her Pensacola office at (850) 795-4910.
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