It is virtually impossible to discuss the topic of divorce without mentioning Katie Holmes and Tom Cruise's split, which was recently settled in a rather quick fashion. While news of the celebrity split has involved a significant amount of speculating by tabloids, Minnesota couples considering divorce could learn a lesson or two from this case, especially couples with complex assets or family-owned businesses.
One of the reasons why this particular divorce settlement is interesting is the sheer size of the couple's financial holdings. Reports estimate that Katie Holmes will receive a $15 million as a result of the couple's prenuptial agreement. In addition, she may also receive a share of the couple's other high-value assets. One of the biggest considerations for many high-asset couples considering divorce are the tax-related implications of their decision.
Minimizing taxation during divorce proceedings, or postponing it, is an art. In some cases, spouses can transfer property without triggering taxation. Transfers that are made incidental to the divorce -- that is, up to one year after a divorce is final -- are not taxable. For example, one spouse could transfer a house to the other without incurring taxes related to a sale. That does not mean that the divided property will be free of taxes at the time of a later sale, but at the very least, the tax would be postponed. Keeping in mind potential future taxes, however, should be an important consideration when dividing property.
There are other ways to limit the significant tax burden that can result from a high-asset divorce. One technique requires couples to mix high- and low-basis assets. If the couple splits up their assets in a way that one spouse will not receive an especially large share of assets taxed at a high rate, then both can walk away from the divorce with a minimized tax burden.
The laws surrounding taxes and divorce can both be rather complicated, so it's not unnatural to feel a bit apprehensive heading into the process. Working with an experienced divorce attorney, who has knowledge of Minnesota and federal tax codes, can alleviate some of the concerns about protecting financial interests at the time of divorce and years that follow.
Source: Forbes "Katie Holmes Divorcing Tom Cruise, Scientology and Taxes," Robert W. Wood, June 30, 2012
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