During divorce proceedings, many complicated matters may arise. There is the issue of deciding who certain assets belong to. Also, there is the matter concerning the distribution of these assets to their owner, or to both spouses in many cases. Lastly, the court can complicate the matters of divorce proceedings completely if both parties cannot come to a cordial agreement on how their shared assets will be distributed. Overall, there still is the issue of taxes once specific properties have been issued to their new owner, or equally distributed among both parties.
Transferred Property is Tax-Free
During the divorce proceedings, a couple may elect to conduct a spouse-to-spouse transfer of property that has been obtained during the marriage or even separately. Under California’s IRS Code Section 1071, any property transfers that occur in the midst of divorce proceedings are tax-free. This means that if you receive a home, vehicles, jewelry, or any other valuable possessions, you will not be required to pay taxes. In addition, if you also receive a lump-sum payment in a matter concerning divorce proceedings, this payment will be treated as tax-free by the state of California. For example, if one spouse takes full ownership of a home and pays the other spouse their share of the home, this lump-sum payout will be considered tax-free.
Particularly, California allows a divorced couple to transfer the ownership of joint and separate properties without having to worry about the issues of taxes, Though, this luxury can only be obtained if both the transfers take place between both spouses and not an additional third party.
Things Can Change if a Third Party is Involved
In California, the nature of divorce does not change the tax considerations of financial transactions that involve a third party. For example, if you forgo the option of taking full ownership of a home and paying the other spouse their share, both parties can agree to sell the property to an individual or entity (third party) and split the profits thereafter. The problem with this option is that the amount of money you and your spouse receive may be subject to capital gains taxes as if you were simply selling your home to another couple.
The basic rule of thumb is that any spouse-owned property that is sold to a third party will accrue some tax penalties, regardless of if you and your spouse fully owned the home.
The Same Rule Applies to Sell Stock
Some assets and properties are simple to divide in a divorce. However, it can be difficult to sell certain stock options to third-party buyers because many stocks have questionable value. Still, if you owned stocks during or before your marriage, and you receive a certain share of these stocks, you will be taxed on the profits you obtain if you sell your stocks to another individual or entity. If these situations apply to you, a skilled and knowledgeable division of assets attorney can help guide you towards a viable solution for both parties involved.