Massachusetts couples who are in the beginning stages of divorce are often overwhelmed by the sheer volume of decisions that must be made. For many couples, issues surrounding finances are chief among their concerns. Understanding the budgetary fallout of a divorce and anticipating future financial needs is imperative to the future success of both spouses, and this is one area in which it makes sense to hire a professional to guide the process.
One area if concern involves alimony, and the tax implications for both the paying and receiving spouse. Tax issues are further complicated by the division of shared assets. Liquidating certain types of assets can result in heavy tax penalties, and can reduce the value of an investment by as much as 50 percent. This is an area in which a financial advisor can assist by mapping out the projected tax consequences for each party under a variety of scenarios.
For example, there may be instances in which it makes more financial sense to accept less alimony in exchange for retaining certain assets. This allows the asset to transfer hands without a tax hit. It can also minimize the tax burden associated with receiving alimony.
On the flip side, a Massachusetts spouse who pays alimony will not pay taxes on that portion of their income. This should be taken into consideration when dividing assets, and it may make sense for that party to retain a greater share of the couple’s assets. While there are a wide range of options available in how a couple chooses to move forward following a divorce, simply splitting everything down the middle is virtually never the best decision to meet either party’s financial needs, and will only result in a drastically reduced net worth for both parties.
Source: Investors.com, “Financial Advisers Help Split Assets During Divorce,” Gary M. Stern, Jan. 25, 2013