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Colorado spouses could face tax penalties in divorce

Divorce is undoubtedly a challenging event for most people to experience. A majority of the pertinent issues are regarding child custody and financial matters. Many Colorado spouses may not be aware that divorce can also come with tax implications when dealing with a number of assets. One of the most common assets that may have tax implications is a retirement account.

In most areas, division of marital assets is conducted under the equitable distribution law. This involves the spouses taking inventory on marital debts and assets, and then everything is split down the middle for each party to receive an equal share. Oftentimes, this is looked upon as being a simple matter that is easily resolved, but challenges are brought on when it comes to home ownership, retirement accounts and life insurance policies.

It is important for spouses to understand that certain assets may be subjected to income tax. These assets include 401(k) accounts and other retirement accounts. In addition, businesses such as a family business may face income tax implications. However, regular bank accounts and vehicles are not subjected to taxes.

Divorce is usually an emotional event in a person's life, no matter how long or short-lived the marriage was. Many spouses have children and have accumulated a certain amount of assets and debt throughout the marriage. It is important for Colorado spouses to become knowledgeable about tax implications on certain assets. Having this knowledge may limit tax risk exposure and increase the possibilities of favorable outcomes in property division divorce proceedings.

Source: tallahassee.com, "Divorce brings its own set of tax implications", Larry Houff, April 29, 2014