Dissolving a marriage, even under the best circumstances, is never easy. However, the legal process becomes even more complex and challenging when significant assets are involved. Those with substantial wealth must carefully consider the potential tax ramifications of their divorce. You may incur higher tax burdens if you fail to consider certain tax liabilities. Therefore, please continue reading to learn how to minimize your tax liability and how our seasoned Monmouth County High-Net-Worth Divorce Attorneys can help you safeguard your hard-earned assets.
How Are High-Net-Worth Divorces Different?
Firstly, a high-net-worth divorce is one in which the parties involved have substantial wealth and assets. This term traditionally applies to divorcing couples with a combined net worth of at least $1 million. High net worth divorces typically involve the valuation of intricate financial issues such as business ownership, investments, stock options, real estate properties, retirement accounts, support obligations, and complex taxation issues. There are more marital assets to divide that are not so easily discernible. Therefore, working with an attorney with experience handling complex cases, including those involving significant assets, is crucial.
What Tax Issues May Play a Role in My High-Net-Worth Divorce?
Often, couples facing high net-worth divorces may end up liquidating property and assets during property division. When dividing appreciated assets like stocks or real estate properties between spouses, you could trigger a capital gains tax liability. Any capital gains taxes associated with these assets may need to be paid if the assets are sold or transferred. Moreover, if you own tax-advantaged retirement savings accounts like a 401 (k) or IRA, you must be careful when dividing employer-sponsored retirement account proceeds. You could incur early withdrawal penalties and income taxes if you withdraw these benefits before retirement. However, using a Qualified Domestic Relations Order (QDRO) to divide these asses to divide retirement holdings without incurring tax penalties.
If you have children, it’s essential to understand that child custody arrangements and child support payments can have significant tax implications. Child support payments are not deductible by the paying parent and are not considered taxable income for the receiving parent. The parent with primary physical custody may be able to claim their children as dependents and receive tax credits for childcare expenses.
If you are considering a divorce, you must understand the tax implications. Connecting with an experienced attorney at Paone Zaleski & Murphy can ensure that you protect your financial interests. Please don’t hesitate to contact our legal team to learn more about how a high-net-worth divorce will impact your taxes.