They say that in life only two things are certain — death and taxes. However, with a 50% divorce rate, divorce is fairly certain, as well. Most people would be hard-pressed to think of something less enjoyable than divorce or taxes independent of each other, so when they collide, it can feel truly overwhelming. Luckily, you do not have to figure this out on your own. An experienced Illinois divorce attorney will know the ins and outs of taxes and how the equitable distribution of assets in your divorce may be impacted by them. As you may have guessed, this issue is most relevant for couples with high net worth, also known as a “high asset” divorce. This is particularly true if alimony is awarded, if separate or communal businesses are disposed of through the divorce, or if the couple owns foreign properties or assets. If property has been transferred as a result of the divorce, or if only one of the spouses is a U.S. resident, this will also have tax ramifications, so it will be important to talk to an experienced attorney to make sure that you take the federal tax implications into account.
Tax Implications for Alimony
Up until 2019, alimony or spousal maintenance payments counted as income for the spouse who was receiving them, and could also be deducted from the income of the spouse who was paying them. However, that tax law has changed. Alimony or spousal maintenance payments are no longer deductible and will not count as income for the recipient.
Tax Implications for Property Transfers
Dispositions and transfers of property are common in a divorce. Illinois is an equitable distribution state, so the total value of all marital assets must be determined before the court can apply several factors to decide how they should be equitably distributed. When property is transferred as a result of a divorce, there will generally not be tax implications for the gains or losses resulting from the transfer provided it can be shown that it was transferred due to the dissolution of a marriage and that the transfer occurred within one year of the end of the divorce. It is important to note that there may, however, be gift taxes on property transferred during a divorce, so it is important to work with a knowledgeable divorce attorney in Illinois.
Tax Implications for Our Model Family
Our model family owns a large five-acre estate with a home and pool. This will be valued for the purpose of the divorce. If the property is liquidated as a result of the divorce and is sold within one year of the date of the divorce, there will not be tax ramifications for any gains or losses on the investment. If other property must be transferred as a result of the divorce, gift taxes may apply which should be considered when structuring the settlement.
Schedule a Consultation With Glasgow & Olsson
If you are undergoing a high-asset divorce it is important to be prepared and ensure that tax implications are considered in the structuring of your divorce settlement. If you need representation for a divorce or child support matter in Cook County, Glasgow & Olsson is here to help. When you need an attorney, experience matters. Contact us today to learn how our experience can get you the results you deserve.
Link to part 1 of the series The Model Family