Be mindful of capital gains tax in a high asset divorce

Be mindful of capital gains tax in a high asset divorce

42865868_S.jpgIn a recent post, we discussed the income tax treatment of alimony payments. For Springfield residents, who are going through a divorce or who were divorced last year, there are other significant tax implications. One of these is the capital gains tax and its impact on the divorce property division.

When assets are transferred between the parties to a divorce, the IRS does not treat the transfer as a taxable event. But, when a spouse who receives an asset in the divorce later sells that asset, he or she may be liable for capital gains tax on the sale.

The federal capital gains tax is levied on the profits earned on the sale of an investment. For example, if one purchases a stock portfolio for $50,000 and later sell it for $75,000, the $25,000 profit is considered a capital gain and is subject to the tax. When a divorced ex-spouse sells a stock they were awarded in the divorce, that spouse will be taxed based on the difference between the sale price and the original price at which the couple bought the stock.

Thus, a stock portfolio with a current value of $75,000 is worth less to a divorcing spouse than $75,000 in cash, if the couple paid less than $75,000 for the portfolio when they purchased it. For a spouse going through a high asset divorce, the capital gains tax may be a significant concern and should be taken into account during the property division negotiations.

Source:, “Divorce, Taxes, and Your Estate Plan,” accessed on March 18, 2017

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