Many things enter a person’s mind when they think about ending their marriage. Of course, there is the emotional aspect of this matter. In addition, spouses in New York are faced with the challenging task of splitting up their belongings. It can be hard to part ways with certain pieces of property; however, this is a vital step to take. It is also important to consider how the decision made today could impact each spouse in the future.
One way divorce can be impactful to a spouse down the line is taxes. Sure, divorcing spouses realize that they will now have to file taxes separately versus jointly, but there are some hidden tax implications that could come to surface once the divorce is finalized. What a spouse claims and the funds they obtain during dissolution can result in tax obligations that could be ongoing.
To begin, if brokerage accounts exist, divorcing spouses need to decide what portion of the account they want. Because tax obligations attach to stocks and bonds, it is important to keep in mind that tax obligations need to be divided evenly as well. This can alter what the divisions of these looks like. Retirement accounts can carry significant tax issues as well. If these accounts are being divided in half, this amount should not be transferred from an IRA to a personal account then transferred to a former spouse via check. This can cause personal tax implications. Instead, a spouse should have a broker transfer these assets directly from his or her IRA to a former spouse’s IRA.
Non-IRA accounts require a court document in order to avoid personal taxation. A portion of a non-IRA account can be transferred like an IRA account, as described above. A judge must sign off on the portion that is to be transferred. Finally, if a divorcing couple decides to sell the marital home, there could be tax benefits. Thus, if this exists, it is important to determine how and if this will be divided among the spouses.
Taxes can be a difficult topic to deal with in general. Adding another challenging topic to the mix, such as divorce, can further complicate the matter. Thus, those going through the divorce process should understand how to address this and other divorce issues. It can help them avoid future divorce issues down the line.