Tax Implications of Asset Division in Austin

When the courts divide marital property during divorce proceedings, there are generally no direct tax consequences for either party. However, existing tax debts and other special circumstances can leave you with an outstanding bill due to the government.

If you have questions about the tax implications of asset division during your Austin divorce, reach out to our firm today. An experienced property division attorney could help you understand the potential for liability while also resolving your case in a way that avoids outstanding tax obligations.

Will a Divorce Settlement Trigger Income Tax Liability?

For the most part, dividing marital assets during divorce proceedings will not lead to tax liability. The court is simply transferring shared ownership of certain assets, meaning that neither party is actually gaining anything that creates an additional tax basis. Any applicable sales or income taxes on these assets have also already been paid.

Like with most aspects of the law, there are some exceptions to this rule. The most common example occurs when the parties liquidate property in order to evenly split the proceeds. In this situation, there may be applicable taxes on the sale. This can happen when a couple sells their home for more than they originally paid for it. Capital gains taxes will apply to the increase in value above the original purchase price.

There can also be tax consequences if one or both spouses are required to spend from retirement accounts. These accounts generally come with substantial tax benefits that will only remain intact if the money is not used for a certain period of time.

Taxes Related to Dividing Business Assets

One of the most common situations that can lead to an outstanding tax debt is when the couple is forced to sell a closely held business. While there are usually no direct taxation implications at the moment the business is transferred, there can be long-term consequences to be aware of.

When a business is sold, the proceeds of that sale could generate an income tax obligation. The same is true if the business gained value from the time it was acquired. Just like with a residence, these situations can lead to taxable capital gains. However, there are steps that couples can take to avoid these headaches, such as taking reasonable wages from business earnings and noting when withdrawals are for income as opposed to company expenses.

The most important step that someone in Austin can take when they are worried about the tax implications of selling their business in a divorce is hiring legal counsel. This aspect of the law is complex, especially when it is coupled with the countless other issues that go into divorce proceedings.

A well-practiced lawyer can help avoid common mistakes that might lead to avoidable debt to the government. Resolving these issues can also simplify the dissolution of the marriage as a whole. Letting a seasoned attorney provide counsel and guidance in these situations is crucial.

Talk to an Attorney in Austin about Asset Division Tax Implications

If you are going through a divorce, you might be surprised about the potential tax implications of asset division in Austin. With the help of the right lawyer, it may be possible to get the fair outcome you deserve. Instead of going through these challenges alone, reach out to a skilled attorney today for a private consultation.