Divorce and separation agreements typically involve trading assets. But an asset might not be worth its face value to you after taxes. If a taxpayer liquidates assets that have gone up in value, he may have to pay state and local income taxes on the sale, which could make him subject to Alternative Minimum Tax.
Specific Details
An asset with a current face value of $100,000 was purchased for $40,000, its cost basis for tax purposes. A $60,000 unrealized gain will carry over after the property distribution. At a 15% capital gains rate on a sale, you will pay $9,000 in tax. This asset will be worth $91,000 to you, not $100,000.
Potential Savings
You should value assets involved in divorce on an after-tax basis.