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What Are The Tax Implications In A Divorce Case

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This is Eric Amat Y Leon. I am a Partner with Burnham Law, and we’re here today to talk about the tax implications of divorce.

We live in a do-it-yourself world, but this is one area where you definitely want to have a professional in your corner. Not all assets are made equal, and one of the things that might surprise the public is that attorneys aren’t very good at math, and all judges are also attorneys.

Let me just give you some examples. If you have a divorce and you have $100,000 in the bank, and you have $100,000 in an IRA, it might be an easy example to say, “Which one is more valuable?” Obviously, $100,000 in cash is going to be more valuable than a pre-tax IRA. One, the money is not going to be available immediately, and you’re going to have tax implications if you tap into that IRA.

But there are other examples that may not be so obvious, and one of those may be paying attention to the tax basis of an asset. If you have $100,000 in an E-Trade account and $100,000 in a Schwab account, while on paper they may both look like $100,000, if you don’t have a professional looking into the tax basis of those assets, it could be a very disproportionate imbalance created between one person receiving one asset and one person receiving the other asset.

There are also strategy cases where both parties may benefit from having a professional involved. For example, there might be cases where there is a large amount of debt that needs to be paid off in the divorce, and maybe retirement may be a source of funds to pay off that debt. Well, in a normal situation, if you’re looking to tap into retirement, you’re going to pay, on top of paying taxes, you’re going to pay a 10% early withdrawal penalty.

In a divorce case there is an opportunity for some tax planning, because if the retirement asset is going from one party to the other party via what’s called a QDRO, and then that second party withdraws the money, they avoid not the taxes, but they avoid that 10% early withdrawal penalty. That is just one example of how both parties could certainly benefit.

All you have to do is give an example. If you’re withdrawing $50,000 from a retirement account, you save yourself $5,000 right there just by having some strategy in place.

This is Eric Amat Y Leon at Burnham Law, and for more strategy, check out our website at

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