Watch out for taxes during property division

| Dec 18, 2020 | Property Division |

For most people, securing a fair share of the marital assets is usually a priority during divorce. This is sometimes easier said than done. Sometimes property division can look equitable on paper, but in practice may be tilted in one person’s favor. This is often because divorcing couples in Minnesota fail to take future taxes into account.

Retirement accounts are a common source of unintended tax consequences, especially 401(k) accounts. When couples decide to split their retirement savings, one person may simply withdraw half of the funds to give to the other — which is then subject to a tax withholding of 20%. Instead, couples should use a qualified domestic relations order — a QDRO — that allows them to transfer funds to a new retirement account without any tax penalties.

Divorcing couples must also be aware of taxes associated with investment assets. For example, capital gains tax can change the overall value of a stock. If one spouse agrees to take a $100 stock while the other takes a bank account with a balance of $100, then the spouse with the stock might actually end up with more or less depending on how much the stock is taxed when sold.

Taxes are unavoidable, but they are often overlooked. However, to ensure a more equitable division of marital assets, it is essential to carefully consider the potential tax implications of every decision during property division. This may feel like a tedious task, but an experienced Minnesota family law attorney can usually provide helpful guidance through the process.