Colorado couples with significant assets should exercise great care in liquidating assets in a divorce. There are many factors to consider, including fair asset valuation and tax consequences.
In most divorces, liquidation should only be a final resort, because liquidation is usually considered a taxable event. Transferring assets to a spouse, on the other hand, is generally a nontaxable event and should be the procedure of choice whenever possible.
When it is necessary to liquidate assets as part of the dissolution, it is critical that those assets be valued fairly so they can be sold for a fair price. For business assets, a qualified business appraiser should be consulted. Real estate, artwork and collectibles should also be appraised by an expert in the particular field.
The tax implications of any liquidation transaction should always be taken into consideration. Whether or not the appreciation of an asset will be taxable on liquidation is a critical issue. It is also important to be aware of what tax rates apply to the liquidation of a particular asset – the difference between capital gains and ordinary rates can make a big difference in the overall effect of the transaction.
In a high asset divorce it is generally better to negotiate the asset division than leave it in the hands of the court. For one thing, family court judges generally don’t have the time to engage in some of the significant valuation analysis that may be required. In addition, in a negotiation the parties can agree on things like whether an asset is marital property, without having to present detailed evidence to support the classification.
A complex asset division requires solid professional advice. Having an advisor who understands all the implications of liquidating assets can help ensure a secure financial life after divorce.
Source: CNBC.com, “Not always a rose: Avoiding thorny asset-liquidation issues in divorce,” Deborah Nason, June 14, 2014
