In certain situations, you can transfer assets to your ex-spouse without triggering tax consequences. These situations may include transferring:
- Bank accounts
A Qualified Domestic Relations Order, QDRO, can also be beneficial. This order can allow you to assign a portion of an asset to your ex-spouse without triggering unintended tax consequences.
Unlike child support payments, spousal support payments, also called alimony, are subject to special tax treatment. The receiver of the support payments is subject to tax, because the payments are considered additional income. On the other hand, the party paying support usually receives a tax write-off.
Liquidating assets can create complicated tax consequences. Depending on the asset and other circumstances, the Internal Revenue Service (IRS) views liquidated assets as income. This is also true for foreclosures. If you do not file bankruptcy and your home goes through foreclosure, there could be tax implications. You could receive a 1099 form, which treats forgiven debt as income subject to taxation. It is important to consider the tax implications of debts and other obligations during your divorce proceedings.
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