Divorce and taxes are two subjects that are often difficult for people to broach. Divorces are often difficult situations that are met with significant emotional baggage. Taxes are complex and often difficult for a layperson to understand and grasp the multiple layers of nuances. Thus, it is no surprise that few people are enthusiastic to consider taxes in the context of a divorce.
DIVORCE/FAMILY LAW ATTORNEYS OFTEN DECLINE RESPONSIBILITY FOR TAX ASPECTS OF DIVORCE:
An attorney who practices in the areas of family law and divorce is often hesitant to take on the responsibility of tax law concerns. In short, most attorneys recognize the multi-layered complexity of tax law and tax considerations. Furthermore, losses due to tax advice that fails to take a comprehensive view of the situation are easily quantified and recognizable. Thus, many divorce lawyers are hesitant to step into the arena of tax law due to fear of malpractice claims. Thus, seeking a tax lawyer to handle this aspect of a divorce or separation is often not only prudent but also necessary to ensure that all relevant concerns are addressed. The bottom line here is that Divorce attorneys often draft themselves out of responsibility for tax issues in a divorce through their engagement letters and are often not properly trained in Tax Law sufficiently enough to counsel on the tax complications in a Divorce.
THE IMPORTANCE OF CONSIDERING THE TAX CONSEQUENCES OF A DIVORCE:
Unfortunately, a failure to consider tax law during divorce negotiations and proceedings can have a fatal effect on your ability to negotiate a divorce settlement that is fair and equitable. The tax treatment and impact of potential alimony and child support payments must be considered. Furthermore, considerations regarding the tax treatment and associated tax basis of transferred property incident to a separation or a divorce must also be considered. Failure to do so can allow the other spouse to leverage gains incurred due to tax planning into additional transfers of property under the settlement agreement. Furthermore, he or she may strategically fund your portion of the settlement with exclusively low-basis assets that will produce large amounts of tax liability when you attempt to liquidate them.
If you are currently in an active divorce, our Tax Attorneys are here to help you understand the tax implications of a draft divorce settlement currently in negotiations and recommend any adjustments that should be made.