Divorce can lead to a lot of financial challenges for couples who are splitting up. Arizona spouses going through divorce may want to keep a few potential tax issues in mind when going through property division. This could help make the entire process run a little more smoothly in the long run.
First, retirement accounts are sometimes divvied up between the spouses during divorce. Spouses who are entitled to a portion of the other spouse’s retirement benefits may find that qualified domestic relations orders can help ensure that such benefits are treated on a more favorable tax basis. QDROs can allow the non-employee spouse to treat the funds as if they came from that spouse’s own retirement account. This can lead to a significant tax savings.
A second potential tax issue that can arise during divorce is that of property transfers. Typically, property transfers occurring during divorce or the following year after the divorce is finalized do not lead to negative tax consequences as far as capital gains or losses go. However, spouses who sell property gained during divorce after that year is up will likely have to pay taxes on such gains. There are sometimes exceptions to that time limit, such as in cases where the spouses made other arrangements in their individual divorce decree or can show valid reasons for delaying any property transfers.