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How do taxes affect property division?

| Mar 3, 2021 | blog

Often when dividing property, it is a give and take process. You will let your spouse have one asset if you can get an asset of equal value.

The problem with this approach is that assets may seem equal, but once you figure in taxes, they are not. CNBC warns that you must always factor in taxation when considering the value of an asset.

Differences

If you have a stock and cash that is equal to the stock, the values are not the same. Any money earned by that stock is taxable. So, you may agree to take the stock in the hopes that it will earn more money, but you fail to factor in the taxation, which ends up making the cash a higher-valued asset.

You cannot see the future, but it is typically better to go with what you know and can guarantee the value of than something that is unknown.

Even if you have two stocks of equal value, the end value is up in the air until you sell. You really cannot value investments the same as you value other assets with values that will not change and that do not face taxation.

Factor taxes

If you want something that will face taxation, such as a stock or a retirement account, then you must factor in the taxes. This is the only way to get the true value, but even then, you may not be able to be sure of the final value as economic things can and do change.

Your best bet when comes to dividing assets is to be aware of the impact of taxes, but to not allow that to completely stall your negotiations. You both will likely end up having to pay taxes on the assets you receive.