There is no denying that divorce can impact one’s finances, so ensuring that everything goes smoothly during property division is essential. This can be a difficult task in a high asset divorce. For example, taxes associated with certain assets such as retirement accounts and stock holdings can lead to profoundly different outcomes than expected.
Taxes often come into play when dividing retirement accounts. An Illinois couple who have two retirement accounts and have saved $100,000 in each might think it best for each spouse to take an account. If one of those accounts is a traditional IRA and the other is a Roth IRA, the spouse who ends up with the Roth account will ultimately come out on top. This is because money in Roth IRA accounts have already been taxed, whereas the funds in traditional IRAs have not.
Stocks can also have hidden tax implications that one might not see until it is too late. Consider two holdings involving the same stock, both of which are worth $100,000. The first holding was purchased at a low price of $45,000, while the second was purchased for $90,000. If the couple decides that each spouse will keep one of the holdings, the person who ends up with the first holding will actually get less after selling because of the 20% capital gains tax. The spouse with the second holding will have to pay considerably less when selling.
Dividing significant assets is much different than deciding who gets to keep the kitchenware. There are serious tax implications associated with most major assets of considerable value, including retirement accounts. Since carefully combing through all of one’s assets and weighing out tax benefits might be difficult during a high asset divorce, it may be more productive to seek guidance from an attorney who is experienced with Illinois family law.