Tax complications during a divorce

When dividing property in a Texas divorce, the focus is on the value of the assets and which spouse receives which assets. However, couples should also focus on the tax implications when dividing some assets. Our Austin divorce attorney discusses tax implications when dividing business assets in a divorce to give you an idea of what to look out for if you are in this situation. 

Do You Owe Taxes for a Divorce Settlement in Texas?

Generally, dividing assets in a divorce does not trigger tax liability. Transferring assets between spouses in a divorce is typically a tax-free transfer. However, there are a few exceptions.

If you sell marital assets to divide the proceeds, taxes could be owed on the sale. For instance, if you sell the marital home, you could owe capital gains taxes depending on the home’s value and other factors. Dividing retirement accounts may result in tax consequences depending on how the spouse invests or uses the funds they receive.

It is best to seek experienced legal advice from a divorce attorney. Your lawyer can help you seek professional guidance from a tax lawyer or tax expert on avoiding paying taxes on a divorce settlement.

What Are the Potential Tax Implications When Dividing Business Assets in a Divorce?

As with other transfers during a divorce, dividing business assets usually falls under the tax-free transfer rule between spouses. Even though you might not need to deal with taxes immediately after the transfer, future tax implications could be associated with dividing a business interest during a divorce. 

For example, if you sell the business assets after your divorce, you are responsible for taxes owed on the amount you receive for the sale. You are also responsible for any gains in value since you acquired ownership of the business assets. 

How Can I Avoid Paying Taxes When Dividing Business Assets in a Divorce?

You might not be able to avoid all taxes, depending on your specific situation. However, several strategies could help you minimize taxes and other financial consequences of dividing a business during a divorce.

  • Keep accurate and detailed business books and records. Accurate records help prove a business interest is a separate asset and not subject to property division. They also assist in correctly valuing a business and accurately calculating capital gains taxes
  • Hire a tax expert to advise you about the tax implications of each legal option available for dividing business assets. Understanding the tax implications helps you make decisions related to the divorce settlement. 
  • Ensure that you are paying yourself fair wages based on market standards. Underpaid wages could impact other areas of your divorce, including child support and alimony. 
  • Avoid cash withdrawals that are not reported as income, as that could also cause tax problems and issues within the divorce.
  • Keep personal and business assets separate. This step is crucial if you claim the business is a separate asset.

With the help of an experienced Austin divorce attorney, you can protect your business assets during a divorce. Choosing an attorney with extensive experience with divorces involving high-value assets and high-earning spouses is essential. 

Schedule a Free Consultation With an Experienced Austin Divorce Attorney 

Property division that includes business interests and other complicated assets can be challenging. Our Austin divorce attorney has extensive experience handling high-asset divorce cases. Call the Law Office of Ben Carrasco, PLLC, to schedule a confidential consultation with one of our experienced property division lawyers in Austin, TX.

About the Author
Ben Carrasco is a highly skilled family law attorney based in Austin, Texas, known for his extensive expertise in family law and business litigation. While his primary focus is family law, Ben brings a wealth of experience in litigating diverse business disputes, ranging from breach of contract and collections to business torts, fraud, and real estate matters. In his family law practice, Ben navigates all aspects of the field, including divorce, child custody, support, property division, and more, offering clients expert guidance throughout the litigation process. His legal journey began in complex commercial litigation, initially with a global law firm and later with a prominent Austin-based firm. However, driven by a desire to make a direct impact on people's lives and embrace the human element of the law, Ben transitioned to family law, a decision that has proven to be deeply rewarding. A proud Austin native with roots in California, Ben completed his undergraduate studies at the University of California, Berkeley, before earning his law degree at Stanford Law School, where he excelled in legal writing and served as an associate editor of the Stanford Law and Policy Review.