When a couple gets a divorce in Colorado, nearly all of their assets acquired during marriage will be split by a judge in a way that he or she deems fair, or “equitable.” Before a judge makes an order, spouses can try to reach an agreement between themselves on how to divide their property so that they will not be subject to the discretion of the court. One thing that many people forget to consider when separating assets is the effect that taxes will have on the value of divided marital property.
The benefits of waiting to finalize a divorce
Though separating couples may be eager to finalize their divorce proceedings, there can be benefits in waiting to make things official. For instance, if parties to a divorce decide to sell their marital property home in order to split the assets, the proceeds of the sale will typically be taxed less if the owners are still married. If you file your taxes as married filing separately in the last year of marriage, rather than as single, you may benefit from some additional tax credits like the dependent care credit.
Dividing retirement accounts
If you or your ex needs to distribute money to the other from a retirement account, be cognizant of how taxes will affect the value of the funds transferred. If you receive securities that grew significantly while in your spouse’s name, you may be responsible for paying taxes on the appreciation in value. You should also determine whether the transfer of funds from a retirement account is a taxable event and whether you need a qualified domestic relations order to avoid taxation.
Getting assistance from professionals
If you have recently separated from your spouse and want to start the divorce process, you may consider consulting with a Colorado-licensed family law attorney. A family law attorney who works regularly with financial planners and tax advisors may be able to guide you in the right direction regarding how to distribute your marital property assets.