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Property division and potential tax problems

While going through divorce in California, a couple can face many points of difficulty as decisions are made about belongings, assets, liabilities, custody and support. Unfortunately, some problems won't crop up until the settlement has long since been formalized, especially when assets that have appreciated in value are divided. Taxes can have a dramatic impact on the final value of an individual's portion of a settlement, which makes it a good idea to consider tax implications prior to settling in a divorce.

In some cases, property division can involve the need to equally split household resources. Investments may have appreciated during the marriage, and a stock transfer's value could affect the individual receiving that asset. While the increased value of a stock might normally result in the owner's need to report a capital gain upon liquidation of the asset, transferring it because of divorce relieves that party of the requirement to report a gain. However, the individual receiving the asset would be treated as having a tax basis equivalent to that of the transferor and would be responsible for capital gains taxes if the asset was sold for an amount in excess of that basis.

Spouses who are parting ways may be willing to accept valuable assets in place of spousal support or other rights, a step that can facilitate a fresh start with minimal ties to the former partnership. However, considering the tax implications before accepting such an option might help in adjusting the final values of any assets to be transferred as they relate to the settlement.

As a couple goes through the divorce process, both financial and legal counsel can be important for ensuring that the action does not create unfair or unbalanced burdens. As retirement accounts, investments, and properties are evaluated, each party should consult their respective divorce attorneys in order to learn about the possible tax ramifications.

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