INTEREST ON BUY-OUT
It is not unusual for a property distribution payment to be stretched out over some years, and in that case it is also not unusual for there to be interest paid on the outstanding balance (sort of like on a mortgage). While it is clear that the principal payments are tax free, that is not the case with the interest. If there is interest stated on the installment payment of the property distribution, that interest is taxable income to the recipient. Interestingly, it may or may not be deductible to the one making the payments – that depends on a number of complex tax factors.
Friday, March 16, 2012
Friday, February 10, 2012
Kal's Kweries**
KWERY:I have a small business, and I’m getting divorced, and my wife’s financial expert has put a number on it that is simply unreasonable. I want to be fair, but I don’t want to be taken advantage of.
RESPONSE:Everyone has a different idea as to what is a reasonable for what a business is worth and what is a fair split between spouses. Besides your attorney, you need your own financial expert who can either do a full valuation to counter your wife’s, or at least advise you in sort of a consulting fashion as to whether the number is within reason. If the number isn’t too far off, the practical thing to do is to negotiate some reasonable compromise – and keep in mind that both of you need to compromise or you both will lose. If the number is really unreasonable, then you will certainly need your own financial expert as part of your team to counter your wife’s number.
RESPONSE:Everyone has a different idea as to what is a reasonable for what a business is worth and what is a fair split between spouses. Besides your attorney, you need your own financial expert who can either do a full valuation to counter your wife’s, or at least advise you in sort of a consulting fashion as to whether the number is within reason. If the number isn’t too far off, the practical thing to do is to negotiate some reasonable compromise – and keep in mind that both of you need to compromise or you both will lose. If the number is really unreasonable, then you will certainly need your own financial expert as part of your team to counter your wife’s number.
Tax Tip of the Week*
PAYING FOR AN ASSET
One of the more frustrating realities of the tax law is that as part of a divorce process, when one spouse buys out the other spouse’s interest in a piece of property, it is a non-tax event. A common and simple example is that the wife keeps the house, and pays the husband let’s say $200,000 for his interest in the house. That exchange of money is, from a tax point of view, a non-event. That $200,000 does nothing as to the tax basis in the house. It is the same situation when one spouse buys the other out of an interest in a business, or a stock portfolio.
One of the more frustrating realities of the tax law is that as part of a divorce process, when one spouse buys out the other spouse’s interest in a piece of property, it is a non-tax event. A common and simple example is that the wife keeps the house, and pays the husband let’s say $200,000 for his interest in the house. That exchange of money is, from a tax point of view, a non-event. That $200,000 does nothing as to the tax basis in the house. It is the same situation when one spouse buys the other out of an interest in a business, or a stock portfolio.
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