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When couples marry, they are usually not thinking about the financial implications of a divorce. There are a variety of tax advantages to marriage which many couples have used to their advantage. However, when a couple in Michigan decides to get a divorce, there may be some unwanted consequences which have to do with what is considered marital property.
Recently it has been more difficult for divorcees to seize certain personal assets that were acquired prior to the marriage. This has significant tax consequences for couples who are in a higher income bracket or own a significant amount of assets. For example, a husband who pays a higher tax rate may transfer a stock portfolio which he bought prior to marriage to his wife who earns a lower income. This would reduce the couple’s joint tax liabilities.
However, if the husband decides to divorce the wife, the stock portfolio would be considered marital property and would therefore be required to be divided in the divorce process. This means that spouses may want to reconsider transferring non-marital assets to their spouses for tax advantages. Many legal experts believe that financial planners should address this issue with their clients when giving tax planning advice.
One way to avoid this problem is to predetermine future property division in the case of a divorce by using a prenuptial agreement. This will allow a spouse in Michigan to obtain the tax benefits of sharing property, while also protecting himself or herself from losing the property when the marriage breaks up. This will also make the entire divorce process less contentious since much of the issues will have already been decided.
Source: Investors Chronicle, “Divorced tax savers stung for millions,” Katie Morley, Dec. 3, 2012