Minnesota residents who are ending their marriages need to be prepared for the tax consequences that may follow. For instance, if an asset is sold pursuant to a divorce decree, it may be necessary to pay capital gains taxes on any profits the sale generates. If a couple is splitting a retirement account as part of a settlement, it should be done under the terms of a qualified domestic relations order (QDRO).
Following the terms of the QDRO generally means that the account can be split without having to pay income tax or an early withdrawal penalty. It is important to note that it isn’t necessary to get a QDRO to split an IRA. Ending a marriage will likely result in a change to a person’s income tax filing status. However, when the change in status occurs depends on when the marriage officially came to an end.
If a couple is still married at the end of a calendar year, they can file a joint tax return the following year. In the event that the marriage ended prior to the final day of the calendar year, an individual will likely file his or her own return. Individuals who are getting divorced may wish to speak with a financial adviser to learn more about how a divorce might impact their tax returns.
Individuals who are planning on ending their marriages may want to consult with family law attorneys. An attorney may be able to provide information about the potential tax consequences of selling the marital home.Counsel may also provide insight into how a parent can retain custody or other rights to a child.