Montgomery County Matrimonial Taxation Matters Attorney
The 2017 reforms were the first major tax code revision in several decades. By design, most of these changes affected families, including unmarried families. Whether these changes were positive or negative largely depends on individual circumstances. The constantly changing nature of tax laws could significantly affect marital property settlement provisions, both now and in the future.
The diligent Montgomery County matrimonial taxation matters attorneys at Kardos, Rickles & Hand carefully examine every angle of every settlement proposal. This deliberate approach helps us preserve your legal and financial rights. These rights include the right to an equitable share of marital property and a proper amount of future financial support payments or receipts.
Family Support Obligations
Child support payments and receipts are neither tax-reportable nor tax-deductible. Until 2019, alimony payments were deductible and alimony receipts were reportable. Many years ago, Montgomery County family law attorneys could customize FSOs and take advantage of these tax law differences. But those days are long gone.
Nevertheless, some tax customization might be possible, mostly in high-asset divorces when the normal financial rules do not apply. So, it is important to consider the full effect of these obligations, and not just their pre-tax consequences. With a little planning, and perhaps a partnership with an accountant, we can better protect your family’s financial future, whether you pay support or receive it.
Retirement Account Withdrawals
These rules vary significantly as well, mostly depending on the terms of the individual Qualified Domestic Relations Order which divides a retirement account upon divorce. Plan Administrators have a great deal of freedom to establish terms.
Generally, upon retirement account division, non-owner spouses may elect one of several options, as follows:
- Do nothing, and receive a proportionate share of payments when the owner spouse retires,
- Roll the existing funds into a new tax-deferred account, usually an IRA, and have complete control over, and responsibility for, the account, or
- Cash out the shares and spend or save the proceeds as they see fit.
Generally, non-owner spouses pay a significant tax penalty to liquidate their shares. But the penalty might be worthwhile, depending on what they need to use the money for. Alternatively, non-owner spouses could agree to a setoff. They might give up a share of a retirement account in order to receive a larger share of a more liquid asset, like home equity.
The potential tax consequence is a factor in a Pennsylvania equitable property settlement. That’s a factor which some attorneys overlook, but we do not.
Capital Gains Taxes and Post-Divorce Home Sales
With the possible exception of a retirement account, the family home is usually, by far, the largest single marital asset. Normally, when homes are sold, the capital gains tax is a major consideration. But the basis is different in post-divorce sales.
Assume Linda and Sue bought their townhome with $200,000 cash shortly after their marriage. Various improvements increased its value to $250,000 at the time of divorce. If Linda and Sue sell the townhome as part of the divorce settlement, the capital gains basis is usually $200,000 as opposed to $250,000.
This rule could significantly affect the final value of a shared portion of a real estate sale which takes place as part of a marriage dissolution settlement.
Reach Out to an Experienced Attorney
Fluid tax laws could affect the bottom line of a marital settlement agreement. For a confidential consultation with an experienced family law attorney in Montgomery County, contact Kardos, Rickles & Hand. We routinely handle matters in Pennsylvania and New Jersey.