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Divorce settlements can have major tax implications

On Behalf of | Jul 21, 2021 | Collaborative Divorce |

People who are going through a divorce have a lot to think about. One thing that must be a priority is getting the property division handled. While this might seem like an easy feat, it can turn complicated if there are tax implications involved.

Pennsylvania is an equitable division state, which means that the property is divided based on what’s fair, and not what’s even. This means that one spouse could walk away with a larger settlement than the other. It’s imperative for you to remember that there’s more to think about than just the value of the assets.

Some assets might be subjected to taxes

As you’re going through the property division possibilities, remember that the assets that will need to be sold may be subjected to a capital gains tax. This tax is based on the profit from the sale and the amount of time you owned the asset.

An asset that you owned for less than one year is taxed according to the short-term capital gains tax. Ones that you owned for longer than one year are subjected to the long-term capital gains tax. While you might have to pay taxes if you sell the asset, the transfer of the assets to you from the marital holdings won’t be taxable if it’s transferred “incident to divorce,” which means within a year of the divorce. It’s also possible to avoid taxes if the asset is transferred within six years if it’s covered in the divorce decree.

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