Divorce can create tax consequences that are easy to overlook when dividing property, retirement accounts, investments, or business interests. Our divorce tax attorneys in Harrisburg, PA can help clients identify potential tax concerns during property division and coordinate legal planning with appropriate tax professionals.
Tax Issues in Pennsylvania Divorce
During a divorce in Pennsylvania, property owned by spouses is divided into two categories: marital and separate assets. Marital assets are typically anything acquired during the marriage, excluding gifts and inheritances, and they are divided equitably during divorce.
Separate assets are generally anything acquired before the marriage and are not subject to division in divorce. However, if separate property mixes with marital property or increases in value during the marriage, it may be divided.
When property is divided, it is important to consider the tax consequences. For example, one spouse may receive an investment account while the other receives the marital home. Even if both assets are worth $200,000, taxes may affect the amount each spouse ultimately receives. Mette Attorneys at Law helps clients examine the potential tax consequences connected with major financial decisions in divorce. Our firm can help clients examine issues such as:
- Property transfers and potential capital gains. The tax basis of an asset can affect its future tax consequences.
- Retirement account divisions. Different types of retirement assets may carry different tax considerations.
- Business and investment interests. Valuation and potential gains can affect the practical value of assets being divided.
- Filing status and dependents. Divorce and custody arrangements can affect certain tax-related decisions.
Careful coordination can help clients make informed decisions about the financial terms of a divorce.
Property Transfers and Basis
Transferring property during a divorce can involve more than determining who receives an asset. The property’s tax basis can affect the amount of gain recognized if it is later sold. For example, two spouses may divide a home, investment property, or other appreciated asset equally based on its current market value.
If one spouse later sells an asset with a low tax basis, that spouse could face a significant taxable gain. This can be particularly important when spouses are dividing assets that have increased substantially in value during the marriage.
Retirement Accounts
Retirement accounts can present additional tax considerations during divorce. A traditional retirement account may have different tax characteristics from a Roth account or other investment asset, even when the account balances appear similar.
Our attorneys can help clients address the legal aspects of dividing retirement assets and determine when additional tax or financial guidance may be appropriate. Certain retirement transfers may require specific procedures to avoid unnecessary tax consequences, so careful coordination can help protect the value of the settlement.
Business and Investment Assets
Business interests and investment accounts can create complicated tax considerations during property division. The value of a closely held business may depend on its:
- Assets
- Liabilities
- Ownership structure
- Future income
Investments may also have different tax consequences based on their purchase price and current value. Mette Law can help evaluate how these assets fit into the overall property division process and coordinate with financial or tax professionals when specialized analysis is needed.
Get Guidance for the Financial Side of Divorce
Divorce can bring difficult financial decisions at an already challenging time. Understanding how taxes could affect your property settlement can help you avoid unexpected financial consequences later.
Mette Attorneys at Law can evaluate tax issues in divorce in Pennsylvania and help you understand how they may affect the outcome of your case. Call our team today at 717-232-5000 or use our online contact form to schedule your consultation.