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Health & Fitness

Don't Overlook Taxes When Dividing Assets

A common mistake that we often see in a divorce settlement is when one party fails to consider the impact of taxes on the assets they keep in the divorce.

For example, let’s take a couple with the following assets to be split in their divorce: savings and money market accounts= $120,000, car 1= $15,000, car 2= $22,000, securities account= $60,000, rental property= $300,000, cash proceeds from home sale= $247,000.


Spouse 1 proposes that she keep the cash from the house sale ($247,000), the bank accounts ($120,000) and her car ($15,000).  Spouse 2 will keep the rental property ($300,000), his car ($22,000) and the securities account ($60,000).  On the surface, this seems fair as both spouses end up with $382,000 worth of assets.


But consider the effect of capital gains taxes for Spouse 2.  Let’s say the stock in his securities account was purchased a few years ago when the market was lower and the cost basis is $40,000.  And the rental property was purchased for $200,000 and has been depreciated on his tax return for several years, leaving a cost basis of $150,000.  So, with long term gains of $20,000 and $150,000, he would be liable for $25,500 in capital gains taxes when he sells the stocks and rental property.

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While Spouse 1 owes no taxes on her assets and nets the full $382,000, Spouse 2 only nets $356,500 after taxes. 


Be sure to consider the effects of taxes on your settlement, especially when dividing securities, retirement plans and real estate.

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More information about Senes & Chwalek Financial Advisors can be found at www.senesandchwalek.com.  Views and opinions expressed are those of Renee W. Senes and David Chwalek and are subject to change based on market and other conditions.  The information provided is general in nature and should not be construed as tax or investment advice. Consult your investment professional regarding your unique situation.

Renee W. Senes and David Chwalek are Registered Representatives and offer securities through Investors Capital Corporation, Member FINRA, SIPC

Advisory Services are offered through Investors Capital Advisory Services, 6 Kimball Lane, Lynnfield, MA  01940  (800) 949-1422

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