Are tax implications considered in dividing property in a divorce?

former married couple sign a divorce certificate

When dividing assets in a divorce would any taxes associated with the property be considered?

In Texas, under Family Code 7.008, when dividing the estate of the parties in a divorce the court may consider whether a specific asset will be subject to taxation.  The court can also consider, if the asset is subject to taxation, when those taxes will be required to be paid.

The common examples are with retirement accounts or similar investments.  A ROTH-IRA is different than a traditional IRA in how withdrawals are treated for tax purposes.  Those differences impact the actual value of the account.  Other considerations would be prepayment of taxes, such as when an escrow account is included in Mortgage payments, or if large quarterly tax payments have or have not been made on a small business.

If accounts have been cashed out during the lead up to the divorce, and there will be tax consequences as a result, the court can consider those tax consequences when awarding assets and debts of the marriage.  The court may even require one party to assume the other’s liability or require reimbursement for taxes paid.

In addition to legal advice for the divorce process, it is also a good idea for individuals dividing such accounts to consult with a financial planner or similar tax professional to advise on how focusing on certain assets in a divorce would help them meet their strategic short-term as well as long-term goals.