Capital Gains Tax Considerations For Divorcing Couples

Morris County NJ Taxes and Divorce AttorneysDivorcing couples in New Jersey and around the country are often eager to put the past behind them and begin anew, but rushing through property division and spousal support negotiations can have unintended consequences even when discussions are cordial and the couple involved see eye-to eye on major issues. Few things cause divorced spouses more anxiety and stress than being dragged back into disputes that they thought had been settled long ago, but that is what can happen when divorce agreements are entered into without considering future tax implications.

New Jersey law calls for the equitable distribution of marital property, and it allows spouses who are seeking a clean break to surrender their rights to assets such as real estate or investment portfolios in return for their husbands or wives agreeing to not seek spousal support. However, changes in federal tax laws could make this kind of arrangement extremely expensive for the recipient spouse if the assets concerned have appreciated significantly since being acquired.

Tax laws have always required capital gains tax to be paid when such assets are sold for a profit, but these taxes must now be paid based upon the value of the asset at its time of acquisition rather than its value at the time of the divorce settlement. This does not mean that such agreements should no longer be entered into, but it does make prudent tax planning extremely important in these situations.

To navigate around this problem, experienced family law attorneys may suggest adding additional assets to offset this tax liability or altering the value of the assets concerned to reflect their worth after any applicable taxes have been paid. Attorneys could also recommend adding provisions to divorce agreements that require spouses who surrender their rights to assets that have appreciated considerably to reimburse their former husbands or wives for any taxes that become due should the assets in question be sold.