All assets are not equal in a divorce settlement. Retirement accounts have embedded tax liability and a $100,000 IRA may only be worth $75,000 after taxes while a $100,000 investment account may have a $90,000 tax basis and be worth $98,000 after taxes. Anyone going through a divorce should be aware of the impact of taxes when analyzing a proposed settlement.
It is important to calculate the basis and taxable gain on securities in valuing assets and determine how any loss carry-forwards will be allocated. It is also important to address how a tax refund will be split.
Tax planning is crucial during the divorce process. Accurate tax estimates will help ensure you get an equitable settlement and alert you if quarterly payments are due so you avoid unnecessary penalties.
Heather Locus is a principal at Balasa Dinverno Foltz LLC, a fee-only wealth management firm with approximately $2.5 Billion under management. Heather is passionate about helping women make smart financial decisions so they can enjoy their wealth. As an owner and leader of BDF’s Women’s Service Team, Heather provides financial guidance to divorcees and business owners before, during and after the challenging transitions in their lives. Visit her firm website.
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