Be very careful that the property you are receiving in a settlement does not have large capital gains as compared with your ex-spouse’s property. Don’t be fooled if your spouse offers you property of equal value but conveniently forgets to inform you of the tax liability.

What are illiquid assets in a divorce settlement?

An antique automobile, however, is nearly illiquid because it is very difficult to quickly sell this asset to access the actual cash value. Often in a divorce settlement, one party will receive mostly illiquid assets, including the home, while the other party receives liquid assets such as retirement plans, brokerage accounts etc.

What happens at the end of a divorce?

At the end of negotiating a divorce settlement, both parties will be given the divorce settlement proposal, the preliminary but not final paper which will contain the “wish list” of both spouses. Both parties should once again listen to any divorce settlement tips their lawyers give them.

What’s the divorce settlement for Ken and Jan?

Marital Profile: Ken and Jan have been married for five years and have no children. They both entered into the marriage with established careers, earning similar salaries. Divorce Settlement: The marital assets are split 50/50 between the spouses. There is no spousal support or child support.

Do you have to pay taxes on a divorce settlement?

An exception to this rule, however, is a transfer to an ex-spouse as part of a divorce settlement. A Qualified Domestic Relations Order (QDRO) is used to affect this transfer. Income taxes still apply, so any assets you receive from a “qualified plan”, such as a 401 (k), will be subject to a mandatory 20% tax withholding.

Can a divorce settlement be made to another retirement account?

To avoid this mandatory withholding, the transfer must be made directly to another retirement account, such as your own IRA. Once the assets are in your retirement account, you are now subject to the early distribution rules.