Dealing with The Tax Consequences of a High Asset Divorce
A high net-worth divorce requires a sound legal and financial strategy in order to protect your best interests. The decisions you make at the time of divorce will majorly impact your finances going forward. High-asset divorces come with significant tax implications because of the large financial stakes involved.
The most prudent way to deal with this situation is to hire an experienced divorce attorney in West Virginia that has a thorough understanding of the potential financial and tax implications. The right attorney can provide you with the right advice at every step.
Asset Division in a High Net Worth Divorce in West Virginia
In West Virginia, marital assets are divided based on the doctrine of equitable distribution. This means that assets are not necessarily divided 50 – 50. Instead, the court will divide them in a fair and equitable manner. Several factors come into play that may leave one spouse with a larger share of the property. These are:
- Contributions made by both spouses towards upkeep and acquisition of marital property.
- Earning capacity of the spouses.
- Liabilities and debts of the spouses.
- Length of marriage.
- Factors leading to the divorce.
Marital property essentially refers to those that are acquired after marriage. Property acquired before marriage may be termed marital property if the contributions made by either spouse led to a significant increase in its value.
Different types of marital property can be divided in the event of a high net worth divorce, such as business assets, residential and investment properties, vacation homes, bank accounts, overseas accounts and investments, stock market investments, retirement accounts, automobiles, jewelry and antiques, life insurance policies, and trusts among others.
Typical Tax Consequences During a High Asset Divorce in West Virginia
Change of Tax Filing Status
Divorce is likely to change your filing status since you won’t be allowed to file joint returns with your spouse. You need to adjust your withholdings after understanding the implications of the status change as the divorce proceedings move forward.
Possible Capital Gains Taxes on Liquidation of Valuable Assets
Capital gains tax is a tax levied on the profit from the investment or sale of a property. Divorcing couples with several high-value assets and property may decide to liquidate a few of them. You need to be careful while doing this. Asset liquidation may trigger capital gains tax liability. This means you could be taxed on the property acquired through the divorce.
It’s possible that your property is worth more now than what you had initially paid for. It is recommended to transfer the property to the other spouse. This way it will be taxed only when the spouse decides to sell it down the road. Capital gains taxes are calculated on the value increase in the property. These taxes don’t take into account the property’s value during the transfer.
Exemptions Related to Child Tax Credits
You and your spouse need to decide who gets child tax credits and any related exemptions. Only one taxpayer is allowed to claim child tax credits in a specific tax year as per the IRS. You may be able to increase certain breaks by claiming a dependent child. This includes earned income credits, dependent tax credits, or a more favorable filing status.
It can be difficult to determine which spouse gets to claim the children if a couple gets legally separated or divorced. In general, the parent with the primary physical custody gets to claim the child as a dependent. An experienced divorce attorney will usually recommend allowing the higher-income parent to claim the child as a dependent to obtain more tax savings.
Division of Retirement Benefits and Accounts
Tax-advantaged savings accounts, such as IRA and 401K are also divided during a divorce. You may get hit with an early withdrawal penalty if you don’t take the right steps to protect your savings. It’s fundamental to have an accomplished and committed divorce attorney look at your finances if you don’t want to incur penalties while sharing the retirement holdings.
Choose a Results-Driven High Asset Divorce Attorney in West Virginia
The skilled high-net-worth divorce attorneys at the law office of Hardy Pence can ensure that you have fully considered the tax consequences of your decisions made during the divorce. With our extensive experience in handling complicated divorce and financial issues, we can help you arrive at the best possible resolution that not only protects your financial and tax interests but also allows you to take care of your family’s needs.
To set up your free and confidential consultation, call 304-345-7250 or reach us online.