Think Taxes Before Settling Your Divorce
Thursday, July 18, 2013

Too many times clients and/or their lawyers settle cases without fully comprehending the tax impact of their settlement.  Oftentimes, lawyers in their settlement agreements have a particular clause that says, “We do not give tax advice.”   Do not settle a case unless you have tax advice.  Most full-service law firms have tax advice availability in-house.  All good family law practitioners think about the tax impact of any settlement before reaching a resolution.  The following is an example of what could happen:

You are at the courthouse steps ready to go to trial.  There is $2 million in assets.  The other side agrees to give you $900,000 in assets to settle the case, which is less than half.   You have done your homework in advance and you know that most of the assets have significant tax implications and that the after-tax value of the assets is really only a $1.5 million.  Although the $900,000 sounds like a low offer, if that is received in cash, it is an excellent deal for your client.  You enter into a  stipulation saying that the other side will pay you $900,000 in cash.  You win. 

This is an oversimplified example but it is our standard practice to develop charts early on in any case to show the pre-tax and after-tax value of assets so that we can properly advise clients.  Make sure you think taxes before settling any divorce case.  

 

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