A divorce represents a significant transition. Although the filing and process generally takes a minimum of several months, it can be difficult to finalize one’s plans after the divorce. At a minimum, a couple will no longer live together. For parties that purchased real estate together, this requires a discussion of not only property division, but tax considerations.

Specifically, spousal transfers made pursuant to a divorce avoid tax consequences. Thus, if a party intends to sell a house after the divorce, it is important to understand this timeline to avoid triggering capital gains taxes.

Can you withdraw funds from your retirement account?

Similarly, retirement plan withdrawals pursuant to a qualified domestic relations order, or QDRO, generally avoid penalties. However, an attempt to make this transfer after the divorce decree has been entered will not have the same tax benefits.

Which parent gets the dependency credit?

Finally, the parties should determine which parent will claim the dependency credit on federal income tax return filings. (This used to be a dependency exemption, but beginning with 2018 tax returns, it became a dependent credit for each qualifying child). Although many divorcing parents elect for joint legal and physical custody, only one parent can utilize this tax savings.

Our law firm focuses on complicated property division matters in divorce. In addition to the matters discussed above, we also help divorcing couples who hold interested in businesses, multiple real estate holdings, and complex securities. Property division is generally a matter of state law. However, since these additional assets may be in other states or even offshore, it is essential to consult with a law firm that understands multi-jurisdictional and international family law.

Source: Journal of Accountancy, “Tax considerations when dividing property in divorce,”
Ray A. Knight, April 1, 2013