When the tax code was amended in 2018, the tax landscape of Ohio divorce was changed. Alimony is no longer tax-deductible, and the exemption for dependents was removed until 2026. What are the considerations you should make when preparing to split the marital assets?
Stocks
Not all stock portfolios are created equally. Say you have two stocks that are both worth $25,000. That should be simple to split in a divorce, right? One for each party. But you must look at the value of the stocks at the time of purchase to figure out their final value when cashed in. Stock A was purchased for $5,000 and, when sold, will pay capital gains tax on $20,000. Stock B was purchased for $20,000 and, when sold, will only pay capital gains tax on $5,000, leaving the owner of this stock with significantly more money after the sale.
IRAs
Like stocks, IRAs can be tricky. Traditional IRAs have not been taxed yet. When withdrawals are made at retirement, taxes will be applied at the owner’s current tax rate. Roth IRAs, on the other hand, were taxed at the time they were funded, and the money within, including any growth, can be withdrawn tax-free during retirement. This means that the tax burdens on two $100,000 IRAs, one traditional and one Roth, are significantly different, and this should be factored into the settlement.
Children
Keep in mind that the custodial parent holds all the cards when it comes to the IRS. The custodial parent is the parent with whom the child spent more overnights during the year. If this figure is equal, then the custodial parent is the one who makes the most money. While the dependent exemption is currently off the table until 2026, if your children are very young, it’s still important to consider. Plus, there are other child-related tax credits still in place, and those will go to the custodial parent.
Divorce is sometimes an expensive proposition for all involved. Being able to sit down with your attorney and rationally discuss the financial impacts is key to moving forward without animosity.
