Divorce and Taxes

In a property settlement, the tax basis must be considered when dividing the assets.

A spouse who receives a low basis asset should negotiate the appropriate offset factor to the asset's fair market value.

One spouse receives 100 shares in a publicly traded corporation worth $100,000 with zero basis. The other spouse receives their $100,000 savings account. FMV of each asset is equal. However, if the 100 shares are liquidated, the after-tax value is $80,000 after deducting 20% ($20,000) for federal tax.

In this case, the offset factor would be the $20,000 tax. The spouse with the shares should get an additional $10,000 from the savings account in order that each spouse receives an equal share of $90,000.

Gregory J. Cook, EA, CPA Accredited Tax Advisor