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YOUR FAMILY IS OUR FOCUS

San Marcos Texas Legal Blog

Divorce and property division — why you should think about taxes

| Aug 29, 2018 | Divorce |

Most people in Texas understand that there are financial implications to divorce. It is not necessarily uncommon for divorcees to experience a temporary drop in income, a loss in retirement savings and other finance-related issues. However, this does not mean that unhappy couples must necessarily delay divorce. Instead, people should be vigilant regarding the short and long-term implications of property division throughout the entire process. 

Before a couple can divide their property, everything must be listed and valued. However, understanding the value of a marital asset might tell someone how much money it is worth, but this alone does not paint a complete picture. Some assets — like cars and homes — have significant upkeep costs. These also may have tax implications, as do certain investments or retirement accounts. 

It is these tax costs that can affect how much a person really gets out of an asset. If a couple needed to split two accounts that both had $100,000, it might make sense for each person to take one account and call it even. But what if one of those was a money-market account and the other was for retirement? The person who takes the retirement account will have to pay taxes on its distributions, which means that individual will ultimately end up getting less out of their divorce. 

Texas residents should not worry about “winning” or “losing” in their divorces, but they should be aware of how taxes might affect their property division decisions. Just because something is valued equally to another asset does not mean that it will be worth the same in the long run. Having this kind of foresight can be difficult though — especially during an emotionally fraught period such as divorce — so working with a knowledgeable counsel during property division is usually a good idea.