Tax Brake with Robert G. Nath, Esq.

What assets are at issue? Easy items such as cash, stocks, bonds, mutual funds, retirement funds. The cash and cash-type assets don't usually pose any “problem,” but what if there is a gain that has not yet been taxed? Does the value of 100 shares of IBM decrease from $10,000 to $8,000 because there is a gain like that? Some jurisdictions say yes, others no. The same issue arises in retirement plans, where the accumulated amount and the earnings have never been taxed. Someone is going to have to pay the tax on that, at some point. Is the value therefore less?

Partnership and small business stock or membership interests in limited liability companies pose other issues. There is no ready market for such items. How is this valued? An entire industry has grown up around just such assets. And, those experts will tell you, the questions abound. Do you value the entire enterprise as a going concern (higher value) or as a liquidation situation (lower)? Do you use fair market value? Quick sale value? Forced sale value? How do minority interests and lack of marketability affect value in these situations? Again, these are questions to ask.

How about real estate, or the marital home? Is there a tax built in to those assets, decreasing their potential value?

Normally parties employ experts to sort these things out, but not always. If relations are “friendly,” compromises are not only possible but likely, to avoid protracted litigation and the attendant costs. Still, in a divorce or separation, it's best to ask the questions up front, and to find out what standard(s) of valuation your jurisdiction uses.

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