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Remember taxes during property division

| Dec 14, 2020 | Divorce

Divorce can be a time-consuming process in Kentucky. By the time someone has managed to work his or her way through child custody, support and more, there may not be much energy left to fully deal with matters like property division. This can be problematic, as dividing up marital assets can have financial implications for one’s future. Here are a few things to watch out for when heading into this part of divorce.

Some assets that seem equal in value can have different tax implications. For example, there is a difference in taking $100 cash and a stock that is worth $100, because there are capital gains taxes to consider when selling stock. Stocks are not the only taxable asset to keep an eye out for during property division either, so it is important to carefully evaluate marital assets before agreeing to anything.

Retirement accounts also pose potential problems, especially 401(k) accounts. Distributions are taxed, so it leads to the same problem as the stock — one spouse might get much less than the other. Other problems with 401(k) accounts arise when one spouse tries to simply withdraw part of the funds as part of the divorce settlement, which involves a tax withholding of 20%. One solution is to draft a qualified domestic relations order — a QDRO — which can avoid taxes by directly rolling funds into a different account.

Failing to consider taxes during property division can have negative, long term implications. Unfortunately, it can be difficult to fully consider the outcome of certain decisions when there are many different pressing matters at hand. Speaking with an attorney who is experienced in Kentucky family law can prove helpful for those who are unsure of how to approach these types of financial decisions.