When California households have high net worths, taxes may be more of a concern in a divorce. From filing issues to questions about capital gains on asset sales, taxes can present complications both before and after the signing of the divorce agreement. Thus, it is better for people to prepare themselves ahead of time to deal with these issues.
There may be uncertainty about the spouses’ filing status while they are still married. They may be forced to file a joint return if they do not want to miss out on certain tax benefits that married couples receive. There could also be concerns about future filing and certain tax credits.
In addition, new tax laws have also changed the tax status of alimony. Now, payment of alimony is no longer grounds for a tax deduction, and it is also not taxable income for those receiving it. Another tax issue to consider is that there may be capital gains liability built into an asset when someone receives the physical asset as opposed to cash. In other words, when an asset cannot be freely divided and one spouse has to buy the other out, the spouse who continues to own the property may be forced to pay taxes on it when it is sold in the future.
Many of these issues takepeople by surprise both during and after a divorce. Family law attorneys may point out to clients things that they may have overlooked about tax obligations. They could also suggest strategies for using the divorce agreement to deal with these issues.