Today TaxMama hears from Matthew in California who tells us. “My dad is going through a divorce. They have finally reached an agreement on what her half of the house, stocks, retirement, etc. is worth. He is paying her $xxx,xxx.00 and he is re-financing the house to do it. Who has to pay income taxes on that amount (if anyone at all)?”
Dad is giving mom half the marital estate. There are no taxes on the asset split.
This is not a smart move for him, tax-wise, though.
You didn’t ask the right question. What will the eventual tax consequences be?
If Dad is keeping all the assets, he’s going to pay taxes on the gains when he sells the stocks, on the distributions, when he starts pulling his retirement…and so forth.
Dad can afford to consult with a sensible tax professional who won’t confuse the issue, just clarify.
Dad should really be splitting all the assets, except the house, if he wants to stay in it. Even with the house, there are some options that can reduce the ultimate taxes – if he plans to sell in the next 5 or 10 years.
And the arrangement would be fairer to both.
Or just give Mom (step-mom?) the cash and end the whole situation quickly. It’s easier.
And remember, you can find answers to all kinds of questions about divorce, and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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