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Tax consequences

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Tax consequences

Division of marital property in Massachusetts

During a divorce proceeding, distribution of marital property can be a complex process. Massachusetts has established statutes regarding property division of various types of assets. Fair distribution of assets, including alimony, health insurance and business values, is ultimately determined by the court. The division of marital property has tax consequences that must also be considered by both parties. In addition to one party paying alimony to the other, the commonwealth’s courts may also order that one spouse pay for vested and non-vested retirement accounts, investments made together and funds earned during the marriage. Other assets that the court may assign to be distributed include retirement accounts, military and veteran’s pay and pensions, private pensions, profit-sharing ventures, annuities, deferred compensation and insurance settlements. Determination of equitable distribution also includes physical property or the property’s value. When performing a complex property division, the court takes into consideration the needs of dependent children. Additionally, it factors the ability of each party to earn a living, the contribution that each spouse made to the household income and the contribution that each made in running the household. The values of shared assets must be verified when marital assets are distributed during a divorce. The values of personal property, any jointly held business, land, homes and other valuables may be a contentious issue between the two parties. An attorney can help with a thorough investigation and analysis to ensure that their client receives an equitable distribution of marital property at the moment of the divorce and

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Tax consequences for older Americans who divorce

When a Massachusetts couple over the age of 50 makes the decision to end a marriage, the issues they face are often very different from a couple in their 20s or 30s. As we approach retirement, our financial goals change, and financial planning becomes a more pressing need. As a result, baby boomers who are calling it quits should take the time to ensure that they are adequately prepared for the tax consequences and other financial repercussions of divorce. Tax concerns are usually a primary concern for divorcing spouses. Couples who have been together for a long time have grown accustomed to their tax burden, and have effectively planned around that expense. Divorce can bring drastic changes to each spouse’s tax obligations, however, and should be planned for before the divorce settlement has been reached. For example, the decision to keep or sell the family home has significant tax ramifications. If one spouse plans to remain in the home, he or she will take on the costs of maintaining the property, but will also get the tax deductions associated with home ownership. The spouse who walks away from the property may have a lower monthly living expense, but will also lose all homeownership tax deductions. Another consideration involves cases in which the couple decides to sell the home. Selling a home in a year that the owner can still file as married can make a great deal of difference in the bottom line, as the current tax code allows for

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Legal separation may avoid tax consequences, but brings high risk

Many Massachusetts couples find it challenging to know the best approach to ending a marriage. Some couples opt to enter into a legal separation while they determine whether or not to work on saving their marriage. Others move directly to a divorce filing. Each option has its pros and cons, but savvy couples will carefully weigh the financial implications of both choices before moving forward. While a legal separation may help a couple avoid some of the tax consequences of divorce, it can also leave both parties open to a high level of financial risk. A legal separation is a court-approved separation of two spouses, with the responsibilities of each spouse clearly laid out as a part of the agreement. The parties remain legally married, and one advantage of such an arrangement is that the spouses can continue to share benefits such as health insurance. They can also continue to enjoy tax benefits, inheritance rights and access to jointly owned properties. However, there is a degree of risk associated with legal separation, because spouses can also continue to spend jointly owned savings and enter into contracts, leaving open the possibility for a significantly reduced net worth before divorce papers are filed. Many experts advise against legal separation, pointing out that the opportunity to enjoy certain benefits is far outweighed by the risks inherent in remaining legally tethered while the marriage is in a state of flux. For example, if the legal separation outlines a spousal support or child support payment,

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