Many Mississippi couples have heard just how costly divorce can be, but many do not realize just how much is at stake until after the divorce is over. Whether it is a non-contested divorce, which can be relatively simple and inexpensive, or a more complex litigated proceeding, the division of marital assets can come with unexpected tax exposure.
Understanding the risks ahead of time can help both sides to avoid some of the more obvious pitfalls. In more complicated proceedings that involve complex financial holdings, it can be challenging to predict the outcome of property transfers, IRAs, or alimony and child support payments.
Experienced legal advocates can help resolve some of these issues for residents of Greenville and throughout western Mississippi, giving them a more secure financial future after divorce.
Avoiding tax entanglements during property division
When navigating through asset division, child custody and settlement negotiations, it is important to keep in mind several mistakes that people often make that will have tax implications:
- Not realizing the taxable portion of some assets: The dollar-for-dollar comparison between a traditional IRA and a Roth IRA is quite revealing. The spouse who receives a traditional IRA will have to pay up to a 35% tax when withdrawing funds, whereas the recipient of a Roth IRA would not owe anything to the IRS.
- When comparing two stocks of the same value, not realizing the effect of a capital gains tax if the first was bought when the price was lower than the second.
- Although recent tax law changes have eliminated the exemption amount that a parent may claim for their child through 2025, custodial parents of young children should remember that the exemption will come back in 2026. In the meantime, they may claim child, educational, earned income and childcare credits.
- For spouses who own a business or shares and stocks, there may be some loss carry forwards, which are previous year losses that you may use to reduce future taxable income. It is important to include these in settlement negotiations. Also, the other spouse may risk an audit for underpayment of taxes if they filed jointly before the divorce, so for this reason it is better for them to file separately.
Property division in Mississippi
Mississippi is an equitable division state, meaning that the courts will divide marital assets in a fair but not always equal manner, taking into account:
- The length of the marriage, and age and health of the spouses
- If one spouse has primary custody of the children
- The financial well-being or needs of each spouse
- Total value of each spouse’s separate property
Although it is best for the two sides to work together for a negotiated settlement, when this is not possible, the court will step in to determine an equitable division of property based on the unique circumstances of each divorce case.