Tax Brake with Robert G. Nath, Esq.
"Hidden Taxes Lower Asset Values"
- Week of 5/07/01 -
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Divorcing couples often divide marital property, and almost as often pay little heed to the hidden taxes. By that I mean the tax on the gain that the recipient spouse will have to pay when the asset is sold. A good example is common stock. A share of IBM may be worth $100, and if you get it in the divorce, there is normally no tax because of that event. But when you sell it, there IS a tax, up to 20% of the gain.
A recent Minnesota court case says that it's OK to consider that inherent tax when evaluating marital assets, even if there is no taxable event triggered by the dissolution of the marriage. At issue in that case, Maurer v. Maurer (Supreme Court of Minnesota March 22, 2001) were the values of deferred compensation and retirement plan assets. The taxes that would be paid (at a 35% rate) the court said, lowered the value of the asset and that tax could be taken into consideration. This would be true even though the tax would not apply for many years. The delay in the taxation of those benefits may mean that the discount is not so great, but it's still permissible to take the eventual taxes into account. The laws of many states are in accord with this ruling. Other states are to the contrary. It is wise for the spouse who is receiving assets in a divorce to explore whether more should be transferred if there is a tax bite to be reckoned with. Assets to which this principle may apply are stocks, bonds, retirement accounts, deferred compensation, real estate or other investment property. |
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