Many marriages in Massachusetts and across the nation end in divorce, and an individual should be prepared if they believe they are headed toward dissolving their marriage. If the couple has not established a prenuptial agreement, each person might consider hiring a financial advisor before they sign the divorce decree.
In a high net-worth divorce, taxes and financial implications can seriously affect what each person walks away with when the marriage ends. Generally, assets can be transferred between married parties without tax implications. However, dividing some assets, such as stocks, art collections or mutual funds, can lead to serious tax penalties. A financial advisor, tax attorney, accountant or other professional can provide additional counsel regarding retirement funds, Qualified Domestic Relations Orders, Individual Retirement Accounts, federal and state income taxes, an estate plan or the dependency exemption for children.
The most valuable joint asset for a couple will probably be their family home. The couple might choose one of three options: selling the home with an immediate division of the proceeds, selling the home with delayed division of the proceeds or a buy-out of the interest in the home by one party so that the other party keeps the home. In any of these cases, either partner can prevent payment of capital gains taxes by reinvesting the earnings from the home. However, in order for both parties to qualify, they must have both lived in the home for a certain amount of time. Otherwise, they risk losing their eligibility.
During a high-asset divorce, financial preparation is especially important so that the parties can avoid paying unnecessary taxes and instead divide the money equitably between them. A family attorney might help a client minimize their tax liability through careful planning when a marriage ends.
Source: FindLaw, “Divorce, Taxes, and Your Estate Plan,” Accessed Feb. 10, 2015