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Taxes on post-divorce assets

On Behalf of | Nov 12, 2021 | Marital Property |

Negotiating a divorce settlement should be done while coming to terms with the taxes you’re likely to face. Issuing a post-divorce asset transfer in Washington, D.C., is legal but is subject to changing tax laws. What’s important to understand is that transfers and settlements aren’t entirely the same; an asset transfer occurs with the full consent of the spouse giving the property.

Tax-free spouse transfers

During the marriage or as a result of a divorce, the property that one spouse receives directly from another is a transfer. When transfers occur as a result of a legal dispute, this type of property is protected from being taxed. When someone makes an asset transfer to a spouse, it’s considered a gift that must still be reported to the IRS.

Taxes in premarital agreements

Premarital agreements set the method, process and settlement of a divorce in advance. In a prenup, for example, spouses can agree on how taxes will get handled. If assets aren’t passed through transfers, then who pays taxes or how much both pay will get predetermined. Spouses can even pre-plan on how to process post-divorce asset transfers.

Taxes after a year

Claims for marital property within a year of divorcing bypass taxing. However, claims made up to six years after a divorce are subject to being ruled as unrelated to the marriage or divorce. The expiration term for initiating a post-divorce asset transfer dictates how a transfer of assets is taxed.

Post-divorce transfers in Washington, D.C.

When ex-spouses come to an agreement after they divorce, one could be rewarded with assets deemed as related to their marriage. In such cases, this asset transfer to a spouse is tax free, but it’s important for both parties to understand the limitations of this type of transfer.