What Are the Tax Implications of a High Asset Divorce In New York?
One of the changes in the tax laws that came about very recently is that one can no longer take a tax deduction for spousal maintenance otherwise known as alimony. Consequently, any money the person now pays in terms of maintenance or child support is no longer deductible to the payor and no longer included as income to the payee. The practical implication of this is that it actually makes sense to pay a lower amount of maintenance and transfer more assets simply because the person is going to be getting the money anyway.
As an example, it’s say the assets are in the form of retirement assets. When you go to retire, you’re going to have to pay taxes on that money and if you no longer have that money because you transferred it to your spouse, then guess who gets to pay the taxes on that money? Your spouse, when they go to retire. It may be advisable – if the other side will accept it – to try transferring a greater share of a 401(k) or a pension (or other retirement) to the less monied spouse in exchange for a much lower (or even eliminated) maintenance amount. As such, you’ll be taking money you would be paying taxes on anyway and just transferring it to the other spouse – and therefore transferring the tax obligation.
What Lifestyle Changes Can Someone Going Through A High Asset Divorce Expect?
A lot of times people get used to a high lifestyle when the two parties are living together and they have the benefit of either a very high income spouse or maybe both spouses are earning a high amount and therefore the household has $500,000 or a million dollars or more in income and the parties budget out their expenses accordingly. So they have a high amount of mortgage payments to make, they send the kids to private school, they both buy expensive cars, they hire nannies, they hire au pairs etc. Once they budget everything out, you’re talking about monthly expenses that would net $10,000, $15,000, $20,000 or more in a month. That’s all nice and fine when the parties are living under one roof.
What happens when the parties physically separate is that now you’re talking about each party having to maintain a separate household. It’s often the concern of the spouse moving out of the marital residence that they’d be able to move into a residence which will be suitable for the child. In other words if the kids are used to living in a marital residence that’s relatively upscale, then they arguably got used to that type of living. Are they realistically going to be fine with going over to Dad’s new two bedroom condo in Yonkers? Probably not. So it’s a legitimate concern that the spouse moving out of the marital residence – and after payment of maintenance and child support – will be able to afford a decent place on his or her own.
Its recommended to project out what one’s expenses will be once one does move out of the marital residence – perhaps with the assistance of a forensic accountant. I usually tell them right at the beginning of the case, if you’re still living in the marital residence you then need to start pricing out housing situations elsewhere. Start shopping now, because that may impact the amount of maintenance and child support you’re going to be able to afford to offer to the other side.
How Can A High Asset Divorce Impact My Business and Other Stakeholders Involved in The Business?
It depends on whether you have partners in your business. A lot of times if there’s a business that was started during the marriage the non-titled spouse will be entitled to a share of the business value, so that business can have a price tag essentially put on it. The owner of the business may have to pay a share of the value to the non-titled spouse – and depending on how much assets the business has, same could theoretically be a significant hit on the business. The other way it would impact the businesses is if the business itself would have to turn over a trove of financial documentation – and the consequent time involved in doing so.
A lot of times in those cases which involve valuation of a business, a forensic accountant is assigned (or retained) to help value the business – and therefore the titled spouse will have to produce mounds and mounds of documentation to the forensic accountant. It’s usually advisable for the titled spouse who owns a business to hire an independent forensic accountant to assist them with the process of producing the necessary documents to the court-assigned neutral forensic accountants.
I’ve seen the following happen way too often: the owner of the business will just be operating the business, whether it’s a medical practice or a real estate practice or something along those lines. They are going to be out treating their patients, showing houses etc. and they’re not going to have time left over at the end of the day to pull up a U-Haul to their office and put boxes of documents into that truck and get them over to the court-assigned neutral accountant.
Under those circumstances they would benefit by having their own accountant working with them to take in the list of documents that the court-assigned neutral accountant wants. The two accountants can then talk to each other and coordinate efforts to make sure that the court-assigned neutral accountant gets everything that they need to do their analysis for the court and for the attorneys. If it’s just left to the titled spouse to do all that I’ve seen those cases drag on and on simply because they’re not going to have the time. The court-assigned neutral accountant will keep getting back to them over and over again with another list of documents that they have to produce because they didn’t produce enough documents on their first request, so that is something that titled spouses can often benefit from.
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