Tax Implications of Dividing Assets in Monmouth County
When a couple decides to end their marriage, one of their first questions or arguments is who is going to get what asset. Couples will often fight over who gets the house, the cars, who will pay what debt and can even go as far as who gets the dog. However, while a couple may viciously fight over who gets what, they often do not think of the tax implications that go along with dividing their marital assets.
Even with a very thorough and complex divorce settlement, it is important that a person considers the tax implications of dividing their assets in Monmouth County. While most people will think of an accountant when they think of taxes, however, it is critical to have a lawyer who is familiar with the tax implications that accompany a divorce.
A lawyer can help address financial concerns, can negotiate financial issues, can help assess asset values, and can help you consider the tax implications of dividing assets. Contact an experienced divorce lawyer today to discuss your divorce and to learn more about the tax implications of dividing assets in Monmouth County.Dividing Marital Property In New Jersey, in any divorce action, the court may make an award to the parties "to effectuate an equitable distribution of the property, both real and personal, which was legally and beneficially acquired by them or either of them during the marriage.
In New Jersey, when a couple marries, absent certain exceptions, everything that a couple buys is considered to be owned by both spouses. Examples of marital property can include:
- Real Estate
- Furniture in homes
- Savings Accounts
- Individual Retirement Accounts
- Pension Plans
- Life Insurance Policies
In addition to the tax implications of dividing assets in Monmouth County, when a couple incurs liabilities, these debts can be included as marital property and may carry tax implications as well. The following are some liabilities, which may carry tax implications:
- Home improvement loans
- Car loans
- School loans
- Unpaid bills
In New Jersey, it does not necessarily matter whose name is on a car title or on a mortgage when it comes to dividing assets. In a divorce, a judge may order, or perhaps it is stated in a divorce settlement agreement that one spouse will transfer title to the other spouse.
Normally, this would mean that this transfer is subject to tax, however, Section 1041 of the IRS Taxation code provides that in a divorce transferring property between spouses incident to a divorce is not taxable.Retirement Plans
An important tax implication of dividing assets in Monmouth County includes retirement accounts such as 401(k) accounts or Individual Retirement Accounts (IRA’s). When a couple is married the money that each spouse contributes to their own retirement account will be subject to equitable distribution in the event of a divorce.
However, in order to properly transfer retirements accounts, the parties will need a qualified domestic relations order, which will be discussed before, in order to transfer the accounts between spouses.
When a retirement plan is transferred from one spouse to the other, the spouse who is receiving the payments will then be taxed on the account, and in addition, early penalty fees may apply to one or both spouses.Qualified Domestic Relations Orders (QDROs)
A QDRO is a special legal order that allows for one spouse 401(k) or pensions to be transferred or distributed to a nonemployee spouse in the event of a divorce.
A QDRO offers spouses an opportunity to carefully consider tax obligations and offers spouses a full opportunity to consider all the implications of dividing retirement packages.
When a QDRO is properly and carefully created, it can allow a spouse to avoid penalties for withdrawing money from accounts prior to their retirement age and can help clearly delineate tax obligations on both spouses.Contact a Divorce Attorney
Taxes are incredibly complicated and it is easy for a couple to overlook very real tax implications of dividing assets in Monmouth County during a divorce. However, there are lawful ways that allow for a couple to divide their marital property without violating tax laws.
A Monmouth County divorce lawyer can help couples consider their assets, draft divorce agreements and qualified domestic relations orders, and can help clarify the complicated tax implications that often accompany a divorce.