Be Careful with Your Assets in a Divorce

I was reading an article the other day about how Steve Wynn, owner of Wynn Resorts, sold a chunk of his casino stock to pay for his divorce. While liquidating assets is sometimes the only way to cover a divorce, it’s generally an option of last resort, as it can expose you to some unexpected side effects. Why should you be careful with your assets in a divorce?

Selling stocks can expose you to capital gains tax.

Steve Wynn is going to give up a lot in liquidating his casino stock to pay for his divorce. One thing you have to consider in selling any stock is that you expose yourself to capital gains taxes. If you sell a stock for more than you paid, the IRS counts that as a sort of income called a capital gain. You’re taxed on anything you make.

When you’re liquidating stocks to pay for a divorce settlement, a good divorce lawyer will make allowances in the settlement for capital gains taxes. Those taxes are basically additional expenses above and beyond the cost of the settlement. Therefore, if you’re selling stocks to pay your spouse $50,000 in cash in a divorce settlement, the value of the settlement is really $50,000 plus your capital gains tax – really closer to $60,000, depending on how long you’ve held the assets.

Consider your options for distributing liabilities.

If you don’t want to deal with the burden of tax liabilities for liquidating assets, there are a few ways around it. In some cases, you may be able to transfer ownership of assets to your spouse, thereby neatly sidestepping the question of liabilities. If your spouse then chooses to sell said assets, it’s his or her responsibility to pay the taxes.

There are other options, too, for distributing liabilities – a good divorce attorney knows all the tricks, and can advise you or set you up with an accountant who can run your numbers and determine the most advantageous settlement for your situation. If you do liquidate assets to pay your divorce settlement: be careful, and know what you’re getting into!