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Considering the tax implications of property division

Even when divorce is the most appropriate option for a couple, the process can still be time-consuming and emotionally draining. During such a period of time, it can be easy to overlook small details that might seem insignificant. However, failing to consider tax implications when dealing with matters such as property division can cause unfavorable outcomes.

For example, consider a couple in Maryland who have two retirement accounts — a Roth IRA and a traditional IRA. If both retirement accounts have balances of $100,000, the couple may decide to simply keep one account each. This overlooks the taxes associated with each account. Since the money in the Roth IRA has already been taxed while funds in the traditional IRA have not, whichever spouse keeps the Roth IRA will ultimately receive more.

It is also important to consider the taxes associated with stocks. This is because two holdings of the exact same stock that are both worth $100,000 could be taxed differently when sold. If the first holding was purchased for $45,000 and then sold, the spouse who kept that holding will have to pay a 20% capital gains tax. If the second holding was purchased for $90,000 the capital gains tax would not apply and he or she would only pay around $2,000 in taxes. This is the difference between keeping $89,000 or $98,000.

In Maryland, dividing marital property is about more than simply making sure that each spouse has an equitable share when the divorce is finalized. During property division, one must also consider the future implications of his or her decisions. This can be difficult though, especially when there are multiple accounts and assets that all have different tax implications. When there are significant assets on the line, seeking out guidance during this process is often well advised.