It is important to consider the tax treatment of various assets when dividing marital property to ensure a fair division. Say, for example, you and your spouse have a 401k as well as a Roth IRA, both with roughly equal dollar amounts. On the surface it may seem that awarding one to each spouse makes sense, however, the 401K will still be subject to taxes upon withdrawal whereas the Roth IRA will be tax free. Because tax treatment of various assets vary, it is important to work with an experienced marital property division lawyer when trying to achieve an equitable division of marital property.
When the time comes to transfer retirement accounts from one spouse to another, it is critical to follow the correct procedures to avoid triggering a tax or penalty on the funds. IRAs are divided using a process known as a Transfer Incident to Divorce while 401ks are split under a Qualified Domestic Relations Order or QDRO. During a divorce, you will not be required to pay taxes on the immediate division of retirement accounts as long as they are filed correctly with the court in a timely manner. Failure to execute the procedure properly can be costly. Any transfer of retirement funds between spouses without the benefit of a well drafted QDRO or TID will likely be subject to taxation and penalties. Working with an experienced marital property division attorney is key.
Another asset to consider with regard to taxes is the family home. If you have resided in the home for a number of years, the home has likely appreciated in value, perhaps significantly. When you sell the home as a married couple you will pay no capital gains tax on the first $500,000 in capital gains. However, if one of you chooses to keep the family home after the divorce with a plan to sell it later, single owners are only able to exempt $250,000 in capital gains before tax is applied. With this in mind, you and your spouse may want to sell the home as part of the divorce to take advantage of the higher exemption.
Working with an experienced Illinois marital property division attorney will ensure the equitable division of assets and will provide you with information you will need to make decisions regarding the family home and more. Contact the family law attorneys of Schlesinger & Strauss LLC at 847-680-4970.
