What is Davis Schuler & Associates, A CDFA Practice?

Davis Schuler & Associates, A CDFA Practice supports leads, CV requests, and QDRO leads across 11 pages for client intake and divorce advisory work.

Topic

Taxes and Divorce

After-tax value, basis, capital gains, and tax traps that change a settlement's true worth.

Taxes and Divorce

What tax issues should be considered before accepting a divorce settlement?

Before accepting a divorce settlement, you should consider the after-tax value of every asset, not just the sticker price. Key tax issues include: the tax basis and potential capital gains on assets you receive, whether retirement accounts are pre-tax or Roth, the tax consequences of selling a marital home, whether alimony is taxable (for divorces finalized before 2019) or tax-free (after 2018), and the impact of transferring appreciated assets. Two assets with the same dollar value can have very different after-tax values, making a 50/50 split unequal in practice.

Taxes and Divorce

Why can two assets with the same dollar value have different after-tax values?

Two assets with the same dollar value can have different after-tax values because of differences in tax basis, tax treatment, and selling costs. A $100,000 brokerage account with a low cost basis will trigger capital gains tax when sold, reducing the net proceeds. A $100,000 savings account has no tax consequence. A $100,000 traditional IRA is fully taxable upon withdrawal, while a $100,000 Roth IRA is tax-free. In a divorce, comparing face values without considering after-tax values can lead to a settlement that looks equal on paper but is very unequal in practice.

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