The good news is that the I.R.S. generally does not consider the transfer of assets between divorcing spouses a taxable event. In general, if the divorce is the driving force behind the asset transfers, transfers can be made at will with little fear of taxation. Financial professionals advise you on the short and long term financial aspects of your divorce. Short-term issues center on liquidity – valuing and converting your assets to cash. These include stocks, bonds, retirement funds and other investments such as your marital home. Long-term issues center on retirement planning and increasing the value of your assets.
To maximize assets, realize potential tax savings, and possibly avoid later disputes, divorcing or separating couples should examine an array of factors that could impact the parties. Considerations include the deductibility of spousal support payments (also called alimony), the claiming of dependency deductions, and the tax consequences involved in the distribution of assets and the sale of the marital home.
IRS Publication 504 “Tax Information for Divorced Individuals” is a very helpful and useful reference for divorcing spouses. It provides important tax information in areas such as filing status, exemptions, spousal support (alimony), qualified domestic relations orders (QDROs), individual retirement arrangements, property settlements, community property, and legal fees and court costs. It is a good idea to discuss these complex issues with an experienced tax professional who can assist you in optimally planning the tax aspects of your divorce.