What are some tax considerations for a divorce?

While getting ready to divide your high value assets in your upcoming divorce, you should not overlook the possible tax implications for your assets following your divorce. Depending on how your split your assets, you might incur a large tax bill. With the right planning, however, you might avoid some tax expenses.

In some cases, whether you are still married at the time you sell off an asset can matter a lot in how much in taxes you have to pay. Nerdwallet explains a few tax considerations to pay attention to so that you can better plan for your post-divorce future and not run into any surprises from the IRS.

Choosing a divorce date

The date when your divorce becomes final could have a major impact on your tax bill. If you are still married on December 31, the government will use your marital status on that date as your status for tax purposes for the entire year, meaning you can still benefit from marital deductions. If you expect your tax expenses to increase following your divorce, you may help your situation by putting off finalizing your divorce until the first of January.

Selling a marital home

It can also matter when you sell off the marital home. Assuming you do not want to hold on to your marital house, you may find that selling your home after the divorce is complete might increase your tax bill. The IRS only exempts the first $250,000 of gains made on selling a primary home. However, if you are still married and file taxes jointly, you can exempt a higher amount of $500,000.

Splitting your assets

It might sound easy to just settle for a 50-50 split of your assets between you and your spouse. However, depending on how the law taxes your assets, you might end up with a smaller share of the split than your spouse. For example, you might have to pay more in taxes on your share of stocks than if you receive cash in your divorce settlement.

Capital gains taxes may also differ depending on the kind of stocks you end up with. A stock portfolio made up of stocks that had initially cost a low amount might incur greater capital gains taxes than stocks with an initial higher cost. Without taking taxes into consideration, a 50-50 split might not yield you anything approaching an equal share of the marital assets.