In negotiating agreements to divide assets in a divorce, husbands and wives should take care to consider the tax implications involved. For example, if the parties agree that Husband will be awarded his $100,000 401k in exchange for Wife’s being awarded the house equity valued at $100,000, this agreement may be much more favorable to Wife than to Husband once the tax consequences are considered. The 401k is a tax-deferred asset, while the house equity in most circumstances will be a tax-free asset. After considering the income taxes Husband will eventually pay on the 401k, Husband may be receiving an asset that is worth only $60,000 to $70,000 after taxes, hardly equal to the $100,000 in tax-free house equity Wife is receiving.Capital gains taxes must also be considered. If a couple purchases stock for $25,000 during their marriage and it has appreciated to a value of $100,000 at the time of their divorce, this stock, although valued at $100,000, will be worth less when it is sold and the $75,000 gain is taxed at capital gains tax rates.Before signing on the dotted line, it is wise to run the tentative settlement terms by a CPA or other trusted financial advisor who can evaluate the fairness of the potential settlement after accounting for taxes.

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