Gray divorce, or divorcing spouses over the age of 50, can be one of the most financially impactful moments of a person’s life. The tax implications of dividing high-worth assets, especially ones that have special rules about their tax treatment and withdrawals, can be costly. Without the right preparation, high net-worth divorcees in Massachusetts can end up with major tax bills that will significantly increase the cost of the divorce.
How to reduce taxes in a high net-worth divorce
Gray divorce often involves tax-advantaged accounts like IRAs, 401(k)s, and 529 plans. There are strict tax penalties for withdrawing from these accounts early and dividing them may result in losses. However, per Massachusetts family law, the parties in a Massachusetts divorce can protect themselves from tax penalties by creating a Qualified Domestic Relations Order (QDRO). This Order allows one person to withdraw or transfer part of a married retirement account to a new, individual account without a tax penalty.
Traditional retirement accounts, Roth accounts, and 529 plans all have different tax treatments, so knowing which ones to divide and which to leave intact to maximize long-term growth is a big part of reducing the cost of divorce. It’s important to take stock of all these assets before and during a divorce in order to prepare these assets to minimize taxes.
How can an experienced divorce lawyer help?
The higher the net worth of the couple, the higher the potential loss from taxes. When you include the potential lost gains, this can add up to a large amount of money. The benefits of doing some research and planning for your assets in a gray divorce are substantial. The experienced Massachusetts divorce lawyers at Richard C. Bardi & Associates LLC are able to discuss options as you plan your gray divorce.
This post is for general informational purposes and is not, nor is it intended to be, legal advice. Consult a Massachusetts attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail; however, contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.