Are there any tax considerations to be aware of during property division? Well, first and foremost, assets divided in divorce are tax free. However, each party may incur specific tax implications after they’re already divided up. Some of the most common ones are you have to look at in terms of the house and the house benefits, who gets the house. If one party is assigned the house as we discussed before, the physical possession of the house, then that party undertakes the mortgage payments and most of the federal tax laws prevent you from being able to deduct that tax. So, that spouse may get it, and one spouse then cannot take the tax deductions on the house because they’ve been given to the other spouse.
Are there any tax considerations to be aware of during property division?
Another one is if there’s a division of retirement accounts, such as what I talked about before and the qualified domestic relations order; again, the reason we use that vehicle is because it allows transfer tax free. However, if one spouse then wants to take the money automatically or withdraws it, then the federal tax laws would imply taxes on that. And the party receiving the funds then may occur in taxes.
Sean Sullivan is a family lawyer practicing in the Elmhurst, Illinois area at the law offices of Laura M Urbik Kern, specializing in child custody and dissolution in divorce.