High-asset divorces involve more than just splitting property. It is also vital to think about taxes.
In a California divorce, property division can affect your tax bill later. Below are some key points to consider.
Splitting property and tax value
California is a community property state. This means most assets you and your spouse acquired during the marriage must be divided equally.
However, not all assets are the same when it comes to taxes. For example, you may acquire a house, and your spouse may receive an investment account worth the same amount. The house may have lower taxes when sold. The investment account may lead to a higher tax bill. It is essential to consider what each item is worth after taxes.
Spousal support and taxes
If you are getting divorced in California, spousal support can affect your taxes in two different ways.
For federal taxes, spousal support is not tax-deductible for the person paying it and is not counted as income for the person receiving it. This rule applies to all divorce agreements made after December 31, 2018.
However, California state taxes are different. In California:
- The person paying spousal support can usually deduct it.
- The person receiving support must report it as income.
This means your spousal support may affect your state and federal taxes in different ways.
Retirement accounts and taxes
Retirement plans like 401(k)s and pensions can be tricky. If you split these without the right paperwork, you may owe taxes or fees.
To avoid this, you need a special court order called a QDRO. This lets you divide the account without extra costs.
Taxes are a significant part of high-asset divorce. To ensure you get the best possible divorce settlement, it is in your best interest to seek legal guidance.