What Are The Tax Consequences Of My Divorce?
When dividing marital property in divorce, it’s important to consider what the asset will be worth after you sell it and pay taxes. Otherwise, you could be getting less than you think you are receiving in your divorce settlement.
At Rowe Law Offices, P.C., our attorneys offer a free initial consultation to answer your questions about the tax consequences of divorce and marital property division. From our offices in Wyomissing and Lancaster, Pennsylvania, we serve Berks, Lancaster, York, Schuylkill and Lebanon counties and the Lehigh Valley.
What Are The Tax Consequences Of Marital Property Division?
When you and your spouse divide marital property, the property transfer is not a taxable event. In other words, if you receive an asset from your spouse, it is not taxable income. However, the asset may have tax consequences when you sell it or, in the case of a 401(k) account, withdraw the funds.
For example, when money in a 401(k) account is withdrawn, it is taxed as ordinary income. If the money is withdrawn early, it may be subject to a 10 percent penalty tax. As a result, money in a 401(k) account may be worth considerably less than an equivalent amount of money in a bank account.
Similarly, if you sell real estate in Pennsylvania, you will owe Realtor fees, plus a 1 percent transfer tax. In addition, you may owe a capital gains tax on any increase in your house’s value. As a result, a $300,000 house is not worth the same as $300,000 in stock.
Other Tax Consequences In Divorce
- Alimony is taxable income to the person who receives it and tax-deductible to the person who pays it.
- Child support is not taxable income for the person who receives it, nor is it deductible to the person who pays it.
- Only one person — you or your spouse — may claim a dependent tax exemption.
Contact Our Pennsylvania Divorce Attorneys Today
Learn more about the tax consequences of divorce by calling our lawyers for a free consultation. Contact Rowe Law Offices, P.C., at 610-816-0935 or 866-232-1913. You may also contact us online to schedule a meeting.