The Tax Implications Of Splitting Up A House During A Divorce 1
In our previous post, we covered filing status issues for divorcing New Jersey couples. Another common issue for divorcing couples is dividing up the marital home.
The division of martial assets is one of the most complex and challenging areas of New Jersey divorce law. Homes, family businesses, and major investments must be untangled and divided between the spouses in the divorce process. The division of the family home can also have serious tax implications that should be considered in property division negotiations.
Couples do not have to pay income taxes on assets that are transferred during a divorce but may have to pay taxes on the transfer of the marital home, Time Magazine reports. Capital gains taxes apply to homes which are sold after the divorce and pose an unexpected burden for many couples.
Time Magazine reports that married couples do not have to pay taxes on a gain of up to $500,000 on their primary residence. This exemption is halved after a divorce, so a house that sells for more than $250,000 of the amount the couple paid for it can create a tax liability.
Many New Jersey couples saw the value of their home plummet during the housing market crash. These couples may have mortgages that are worth more than the value of their homes and may fear that they cannot afford to get divorced because they cannot sell the family home.
Judges can take the existence of an upside-down mortgage into account and judges have broad discretion to handle such situations. The presence of an upside-down mortgage is also a factor that an experienced divorce attorney can deal with during property division negotiations.
Source: Time, “Divorce and Taxes: Five Things You Need to Know,” Kelly Phillips Erb, 3/6/11