How Might My Asset Division Settlement Affect My Tax Obligations?

Along with alimony, child support, and allocating parental responsibilities, dividing assets is one of the most important aspects of a divorce.

In Nevada, community property is any and all property acquired by either spouse during the course of the marriage. Nevada law requires community property to be divided equally between the two parties.

Equality doesn’t always mean that every asset like a home, car, or business is split in two, with half given to each party.

Instead, the total worth of the assets (including debt) is added up and divided between each side. Sometimes, assets are sold and the profits divided. Often, certain assets will be given to one side while different assets will be given to the other side with the idea that the total worth is equal. For example, one party may be awarded the business or stocks and the other make take cash payments.

Parties in a divorce need to understand that the Internal Revenue Service (IRS) may impose huge tax considerations on certain assets depending on how and when they were sold or transferred.

By planning ahead, both parties in a divorce can minimize their tax liabilities and protect their assets.

How Does The IRS Tax Asset Division In Divorce?

Under §1041 of the Internal Revenue Code, assets divided in a divorce are not subject to federal income taxes. An example would include one party keeping the house while another keeps assets like cars, boats, or a vacation property. Since nothing was sold and the two parties simply agreed to transfer ownership, there is no income to tax.

But what if the two parties need to sell a home, some stock, or other property to evenly divide their assets?

In cases like these, the sale could be subject to capital gains tax depending on what type of asset it is.

For the sale of a home, each party may exclude the first $250,000 of adjusted basis in capital gains from their income. The home must be the couple’s primary home for at least two-years before the sale. The basis is the difference between what was paid for the house and what it ultimately sells for.

One spouse can also buyout the other and remain in the home without paying any capital gains tax. This again, would be subject to the $250,000 shield from capital gains tax since it would constitute the sale of a home.

While the IRS is generous in allowing couples to shield themselves from the sale of their primary home, other assets are not afforded such protections. Capital gains from selling stocks to divide assets are typically not subject to any tax deductions and could result in huge tax liabilities if sold to buyout assets or otherwise divide marital assets.

Las Vegas Divorce Attorney

As an experienced Law Vegas Divorce Attorney, Shawn M. Goldstein has years of experience helping parties in high net worth divorces navigate the process as smoothly as possible while considering effective strategies to minimize tax considerations.

Securing one’s financial future following a divorce is vitally important and Shawn M. Goldstein has the dedication and resources to help ensure that. Contact Goldstein Law Ltd. for a consultation about your case. Serving Las Vegas, Nevada and surrounding areas.