Tax Implications of Divorce in Pennsylvania
The division of marital property is one of the most crucial aspects of a divorce. The State of Pennsylvania is an equitable distribution state. That means that assets and debts acquired during the marriage are divided fairly, albeit not necessarily evenly. “Fair” is based on several factors such as the length of the marriage, each spouse’s earning power, and each spouse’s contribution to the marriage. Equitable distribution of the marital estate can, therefore, have significant tax consequences especially when it comes to valuating assets and any potential capital gains tax liabilities. By understanding these nuances, you won’t be caught off guard by unexpected tax burdens.
Tax burdens when it comes to transferring property
The property transfer aspect of any divorce can trigger tax liabilities. For instance, while the transfer itself wouldn’t necessarily be considered taxable, the sale of the property could result in capital gains taxes if the property has appreciated in value. It’s important to consider the value of a property for tax purposes and how it will affect potential capital gains. In addition, assets like stocks or real estate may carry hidden liabilities that should be factored into negotiations during the settlement process.
The Philadelphia, PA family law attorneys at The Law Offices of Lauren H. Kane can help advise you about the tax consequences of taking on a new piece of property and help you make informed decisions about dividing property in a manner that limits your tax liability.
Alimony and tax obligations
The law has recently changed when it comes to tax obligations and alimony. For any divorce finalized after December 31, 2018, alimony payments are no longer tax deductible for the payer. In addition, they are no longer considered taxable income for the recipient. This shift in the law represents a significant change to previous tax rules and can impact the strategies of both parties. Understanding how alimony is taxed is an important aspect of devising a beneficial divorce strategy that meets your needs.
Retirement accounts and tax obligations
Retirement accounts are one of the most significant assets to be divided during a Pennsylvania divorce. Splitting these accounts can often be complex because there are rules regarding when you can access the funds without penalty. You need a Qualified Domestic Relations Order (QDRO) to divide retirement plans such as 401(k)s or IRAs without incurring early withdrawal penalties or immediate tax liabilities. It is essential to handle such a transfer correctly to avoid unnecessary taxes and penalties.
Talk to an Experienced Philadelphia, PA Divorce Lawyer Today
The Law Offices of Lauren H. Kane can help advise you on the tax consequences of any agreement you make during a divorce. This will significantly impact your finances moving forward post-divorce. Our Philadelphia family lawyers can help devise strategies that limit your tax liability and ensure the best possible outcome for you moving forward. Call our office today to schedule an appointment, and learn more about how we can help.
