A closer look at tax implications in a California divorce

By |2022-03-25T08:19:19+00:0011 Dec 2013|Categories: Divorce, Emotions, End of a Marriage, Property Division|

The end of a marriage is frequently an emotional time. Many Californians who have gone through a divorce know this firsthand. Alongside the anger, frustration, relief and other emotions comes something most of us would rather not think about, taxes.

Property division is the natural end of divorce and has its benefits and its drawbacks. A sudden and unanticipated tax liability is one of the latter.

Because California is a community property state, all assets and properties accumulated during a marriage are considered community property. Each spouse is entitled to half the total. Assets that each party acquired before the marriage, however, are considered separate properties and are exempt from property division.

There are no additional federal taxes when it comes to the division of most community property and assets. Section 1041 of the Internal Revenue Code allows divorcing spouses to split cash, business assets and properties without having to pay federal income or gift taxes.

Similarly, if one spouse transfers ownership interest of an asset to his or her spouse, the transfer also is essentially tax-free. These transfers may occur before and during final dissolution of a marriage.

Retirement accounts with built-in tax advantages such as IRAs and employer-sponsored retirement plans, however, do not enjoy that same tax-free status. To avoid getting taxed on money going to an ex-spouse, consult someone with tax experience who can figure out the best way to move such funds. Although legal finessing of the tax code may seem like a lot of trouble, avoiding a big tax bite may be worthwhile in the end.

Financial matters like tax issues are often more complex than the emotional issues people usually consider with divorce.

Source: MarketWatch, “What’s even worse than divorce?” Bill Bischoff, Dec. 3, 2013

About the Author:

Dorie Anne Rogers - The Law Offices of Dorie A. Rogers, APC
Dorie A. Rogers, a Family Law Specialist, Certified by the State Bar of California, has been an attorney since 1981 with an exclusive family law practice located in Orange County. She is accepting dissolution cases with support and property issues including the use of forensics to ascertain business value, community interests and to establish monthly case flow analysis. Ms. Rogers has substantial experience in high conflict custody litigation involving sophisticated psychological issues. She drafts premarital and postmarital agreement designed to define and establish parties' separate and community property interests. Paternity cases and domestic violence matters are considered part of her practice. Ms. Rogers is a court-approved and court-appointed to represent minor children.Ms. Rogers consults with individuals concerned about entering or exiting a relationship. She advises effective strategies for dissolution or premarital planning. Knowledge is power and good planning affords better results.Specialties: Family Law Specialist, Certified by the State Bar of California
Go to Top