Avoiding Complicate Asset Liquidation Issues in Divorce

If you are currently liquidating assets in the midst of a divorce property division, this is ground that you need to tread lightly. Each party in a divorce needs to understand how the liquidation may affect their next tax return and long-term financial future. Liquidating a 401(k), for example, can result in an enormous tax bill that you didn’t plan on paying. Holding onto a family home may be another mistake that could result in refinancing a mortgage. Oftentimes this is the only way to remove an ex-spouse from the loan. If an individual can’t qualify for the new mortgage, he or she may lose the home anyway.

At Cutter & Lax, we encourage our clients to really think through tax implications before making any liquidation decisions. Tax liability can make or break a decision. In most cases, liquidation generates a taxable event. Transferring assets between spouses is a nontaxable event, so it is much better to amicably transfer property during a divorce when possible.

Make sure you understand the cost basis of all investible assets and know the purchase price of real estate assets when dividing property. Also, make sure you understand what capital gain will look like for the sale of a home, and make sure to obtain good business valuations if your business is shared. Also, get an appraisal on any collectibles that you believe could make a large difference in a property division case.

If possible, avoiding liquidating your 401(K) and selling anything that will result in a capital gain. Be aware of changes in capital gain exclusion when selling a home, especially when the proceeds of a house sale are split. Also, refrain from selling any assets without seeking a fair price. If you are careful and talk with a San Fernando divorce attorney about your decisions, you have a better chance of achieving satisfactory asset liquidation. Call the firm today to learn more!