Minnesota couples who are ending their marriages should be aware of tax issues that may arise. In some areas, tax reform has changed the financial aspect of a divorce.
One of the major changes concerns alimony. For divorces finalized after 2018, alimony will no longer be tax-deductible by the payer or taxable to the recipient. One issue that may need to be addressed is prenuptial agreements that deal with circumstances in which alimony will be paid. It is not yet clear how these agreements created before 2019 will be handled or if a post-marital agreement will need to be made to address and update the terms of the earlier agreement.
Another change tax reform will bring is in business valuation. The ultimate result is that the value of businesses may be assessed at a higher rate. Accountants should make certain that the assessment represents the actual value of the business to the individual.
The spouse who has fewer assets needs to also make sure that any assets received are valued accurately. Capital gains taxes and liens are among the factors that can make an asset worth less than it appears. Rules must be followed in splitting pension plans and certain types of retirement accounts to avoid taxes and penalties, and a document known as a qualified domestic relations order may be needed.
Property division is often a concern for people who are going through a divorce because their standard of living can drop. Therefore, it can be important for a person to talk to an attorney about finances before going into negotiations or litigation. People may want to consider what issues they are and are not willing to compromise on.