In Colorado, couples must divide their assets according to the rules of equitable distribution. If the pair is unable to come up with an agreement on their own, the courts will decide on their behalf. In many cases, division of marital property will result in a fairly even split. However, depending on how the distribution takes place, one spouse may be exclusively liable for future taxes that can ultimately lower an asset’s overall value.
Sources recently covered this important topic to highlight the importance of acting cautiously when dealing with property valuations. For example, if a couple decides that stocks should be moved from the husband’s portfolio to the wife’s as part of the divorce settlement, she is the one who will assume liability for the capital gains taxes, not him. In the past, the individual who transferred capital-gains assets was responsible for the taxes, but the IRS has since changed their stance.
From transferring home ownership to taking over stocks managed by brokerage firms, this rule on tax-free transfers relates to a large majority of assets. The one main exception is that it is very difficult to be exempt from taxes when transferring retirement funds. Individuals should be aware that they can be taxed on money that was passed to their ex if they give a portion of the retirement balance, unless they follow a complex set of guidelines.
This serves to highlight the importance of seeking professional help when dividing assets. Those who are unclear on the tax implications may feel like they received a fair settlement until they are forced to pay taxes and realize that the property was not equally distributed.
Source: Market Watch, “What’s even worse than divorce? The taxes,” Bill Bischoff, Dec. 3, 2013