Fierce, Agile & Fully
Dedicated To Our Clients

Don’t overlook the importance of taxes in your divorce

| Oct 19, 2018 | Family Law |

Dividing the marital assets fairly is a big part of any divorce process — and that task is often complicated by the fact that you have to keep in mind the effects of taxation on any settlement.

Tax considerations in a “gray divorce” are particularly important because the divorcing couple is far closer to retirement than a younger couple — which means they have less time to recover financially from a mistake.

Gray divorces — involving couples in their 50s and older — have become increasingly common, in part because of social changes that have largely eroded the stigmatization of divorce and changed the expectations couples have out of a marriage. Unfortunately, taxes can take a big bite out of the assets that couples think they have available to divide.

For example, attorneys often see splits where one side wants to keep the house and the other side wants to keep a retirement plan or investment account that seems to be of equal value. However, not all investment and retirement accounts are built alike. For example, a 401(k) account and a Roth account are very different. The Roth account is equal to its face value, while the 401(k) is not because the taxes have yet to be paid on the income that was put into the 401(k). It’s also critical to get the proper legal orders for any pension distributions after the split — otherwise, there may be significant tax penalties that could really impact one or both parties in the future.

Where a family business is involved, divorces are going to be increasingly complex in the coming year. New changes in the tax code allow corporations a much bigger break than before — and that affects the overall cash flow and value of a business. Those are important factors when a couple has to figure out the assets available to pay any alimony agreement or to buy out one-half of the couple’s interests.

All of these factors mean that it’s increasingly important to get good advice when you’re going through a divorce. Not only is it wise to have an experienced family lawyer, but it’s also smart to consider the services of a financial advisor who can help assess the consequences of taxes on each asset. Couples need to remember that even the best family attorney isn’t a tax advisor.