For Colorado couples with significant wealth, divorce can result in some unwanted financial consequences. One of these is the income tax on capital gains, levied by the IRS on the appreciation in value of assets between the time they are bought and the time they are sold.
When a couple divorces in Colorado their marital property is divided equitably. This typically results in the transfer of some assets between spouses. For the most part these transfers have no tax consequences. As long as a spouse can show the assets were transferred in connection with a divorce proceeding, the transfers will be tax free.
Capital gains taxation becomes an issue when a couple has assets that have appreciated in value during the time they were married. These assets can include business assets, stock, mutual funds and artwork, among others. A spouse who receives such assets in a divorce settlement will have to pay capital gains tax when they are sold. The basis of these assets – the original value used to calculate the amount of appreciation – will typically be the value on the date the asset was originally purchased.
The family home is exempt from capital gains tax if certain requirements are met. If the home is sold and the proceeds divided, there will be no capital gains tax on the profit if the proceeds are reinvested within two years of the date the house was sold.
A high asset divorce often involves complex asset division issues. A spouse can benefit from sound advice from a family lawyer who understands the rules of asset valuation and taxation in the context of divorce.
Source: FindLaw, “Divorce, Taxes, and Your Estate Plan,” accessed Aug. 31, 2015