PLEASE NOTE: We are still open and operational! To protect your safety in response to the threats of COVID-19, we are offering our clients the ability to meet with us in person, via telephone or through video conferencing. Please call our office to discuss your options. click here for Covid 19 updates
Laura Dale & Associates, P.C.

Taxes play into property division during a Houston divorce

Houston couples who choose to end a marriage have a lot to think about beyond how they feel about the break-up. Issues like child custody, spousal support and property division can be hot buttons for divorcing spouses. Conflicts over property separation are often magnified in a high net worth divorce.

During divorce, marital property must be added up and assigned a value. The task is not so easy when assets have changing values or are illiquid, like savings accounts that can't be touched without severe tax penalties until a certain age. Before any divorce agreement is reached, spouses must be aware of the tax consequences that might affect them.

The division of retirement plans takes more than an agreement between spouses. An extra legal step, a qualified domestic relations order or QDRO, sometimes is required to grant former spouse's rights to an ex's retirement benefits. The transfer of that money also can have tax implications for either spouse.

In one instance, a court ruled against a woman who received money from her former husband's 401(k) plan. A QDRO named the ex-wife as an alternate payee, responsible for any taxes on the amount. However, instead of rolling over the $103,000 directly to a tax-free savings plan like an individual retirement account, the woman opted to take the distribution.

She received a 1099-R from the plan administrator and reported the income to the IRS. The ex-wife claimed on her 2009 return that she owed no tax for the income because the money created a tax basis; the woman's former husband apparently owed her more than the distribution. The IRS promptly penalized the ex-wife for underpayment of federal taxes, and a court upheld the government's position.

Under other circumstances, the woman might have won the case. However, it's difficult to know the intricacies of retirement fund division rules and exceptions without the guidance of a financial or legal adviser.

Source: Investment News, "In divorce, retirement is at risk" Ed Slott, Jun. 08, 2014

No Comments

Leave a comment
Comment Information
  • Board Certified
  • IAFL
  • Super Lawyers 2019
  • Best Lawyers
  • Avvo Rating
  • Avvo Rating
  • Avvo Client Choice 2014
  • Avvo Client Choice 2014
  • Best Law Firms Badge
  • Laura Dale
  • Texas Bar Today Top Ten Badge

Contact Our Experienced Team Today

Se Habla Español | Nous Parlons Français

Due to the experience our lawyers have in many specialized areas, you can rely on us to put together the right team to handle your case, even if it centers on complex issues such as international family law, business valuation or bankruptcy. Contact us today to make an appointment to discuss your needs with a knowledgeable lawyer.

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Laura Dale & Associates, P.C.
email us for a response

1800 Saint James Place
Suite 620
Houston, TX 77056

Phone: 713-574-7952
Fax: 713-600-1718
Houston Law Office Map

Review Us