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Divorce tax-planning tips to follow

On Behalf of | Apr 26, 2021 | Divorce

Pennsylvania couples who are considering a divorce have many unknowns to anticipate. When it comes to dividing up their assets and liabilities, one factor they likely won’t consider is taxes. Unfortunately, the property division part of your divorce can play a big role in the amount of taxes that you’ll owe.

Capitals gains on your primary residence

When going through the divorce and dissolution process, you’ll need to decide what happens to your primary residence. If it’s decided that one spouse will take full ownership of the house as the other spouse gets another asset of similar value, this will have some tax implications. If the spouse receiving ownership of the house decides to sell it, they can be susceptible to capital gains tax over $250,000.

Taxes on retirement account withdraws

Some retirement accounts can be tricky when it comes to taxes. You can transfer funds that are awarded to your former spouse out of your retirement account without paying taxes. However, say that there are two retirement accounts on the table, which include a Roth IRA and a traditional IRA. If both retirement accounts have the same value, you may look at these accounts as being equal. Unfortunately, that’s not actually the case. The person who winds up with the traditional IRA from the divorce will owe taxes upon withdrawing the funds because all contributions to traditional IRAs are pre-tax dollars.

When you decide that it’s time to call your marriage quits, you may have a long road ahead. While you likely just want to get through the process as quickly as possible, it’s important to pay attention to key factors like taxes. The division of your marital assets can have major financial implications on your taxes, so you need to ensure that you’re taking the long-term view into consideration when determining what’s right for your divorce decree.