When do you need a tax attorney during a San Diego divorce and when should you involve us in the process? My name is Janathan Allen, and after decades of work as a tax attorney and CPA I can tell you that it is important to consider the tax ramifications of the decisions you are making during a divorce. Not every divorce in San Diego will have substantial tax implications. For example, the best rule of thumb, generally speaking is child support is not taxed to the person receiving it and cannot be deducted by the person paying it. Spousal support is the opposite: taxable to the recipient and deductible for the person making payment. There is a seldom-used but tax advantageous option in California known as “Family Support” which encompasses both child and spousal support. Family support is taxable in its entirety to the recipient, and deductible for the person paying it.
So why would anyone agree to receive “family support” if they’re going to pay more in taxes? They would do so if the net amount they receive is higher (which it generally is) because the net amount paid by the payor after taxes is actually less. There are other significant taxable issues that should be considered such as:
- The transfer or sale of real or substantial personal property or vehicles
- Splitting 401(k)s and other retirement assets and pensions
- Offset or Sale of a Business Asset
- Any foreign bank account, investment or asset
Another factor to consider is the taxable “status” of an asset (such as the basis in one investment versus another) has a direct impact on the value of that asset to the receiver. For example, if you receive $50,000 worth of stock with a basis of $10,000 when you sell it you will pay taxes on a $40,000 capital gain. If a different group of stocks, also worth $50,000 has a basis of $40,000 you would only pay capital gains on $10,000 – a tremendous savings. While the net result is $50,000 in cash after a stock sale, the tax bill is completely different ($8,000 versus $2,000).
If you are wondering if you need a tax attorney during a San Diego divorce we invite you to call for a free consultation at 866-631-3470.