When in an Arizona divorce, it is very important to plan the transfer of property between spouses very carefully. In most cases, no taxable income is recognized on the transfer of property such as stocks and real
Arizona Divorce Process
estate between spouses. Unfortunately, taxable consequences can be quite severe post-divorce if tax considerations are ignored.
In order for non-recognition to apply, the transfer of property must be considered “incident to a divorce.” To qualify, the transfer must occur within one year of the end of the marriage or be directly related to the end of the marriage.
Although no tax consequences occur on the transfer, it is important to think of the potential net cashflow from the transfers. For example, retirement assets divvied out in a QDRO are “ordinary income” property, and will be taxed as high as 35% upon withdrawal. Stocks are “capital gain” assets, where only the gain is taxed, and is taxed at a preferred rate. Retirement assets are locked up until age 59 ½ (or subject to penalty) whereas capital gain assets are relatively liquid.
In conclusion, former spouses may receive an equal amount of monetary assets, yet have very different tax consequences on the usage of that money. For more information, find a local Enrolled Agent or CPA, or contact The Blau Company, Ltd., at 480 946-7732.
Disclaimer, This article is of general interest and not to be used as legal advice. If you need legal advice seek the services of an attorney or professional.
