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Michigan Family Law Blog

Saturday, August 31, 2019

When Dividing Property in a Divorce, Does the Court Have to Consider Tax Consequences?

There are many issues that one might face in a divorce, including but not limited to: custody, visitation, child support and alimony or spousal support.  However property division and division of debt are involved in almost every case.  This includes such things as the marital home, personal property, bank accounts and other tangible assets.  It also includes retirement accounts and pensions as well.  Assets like retirement accounts and pensions will require the spouse who withdraws the money to pay taxes on those funds before he or she gets the money, other assets do not have this tax issue.  Ideally, the court would separate these types of property and divide each equally, but in some cases the court will award more retirement assets to one party and more tangible assets to the other party.

Does the Court Have to Consider Tax Consequences When Dividing Property?

Apparently, in Michigan the answer is no.  Case law states that while the overarching goal of property distribution in a divorce is equity, this does not mean the court is required to divide the property equally.  Further, it is established law that where a trial court declines to consider the tax consequences in the distribution of marital assets, this is not an abuse of discretion that will allow a court of appeals to overturn that decision.  The court may (and really should) consider the tax consequences, but it is not required to do so.

The case of Huggler v Huggler, Michigan Court of Appeals Docket No. 343904 (June 25, 2019) provides an example of a case where the court refused to consider the tax consequences when dividing the property.  In that case, the parties had a marital estate with a value of approximately $800,000.  The court equally divide the property but in essence granted $100,000 of non-retirement assets to the husband which was offset by $100,000 worth of retirement assets that were awarded to the wife.  The wife contested this, claiming that if she withdrew the funds, she would incur approximately $39,469 in taxes and penalties.  

The trial court rejected the wife's argument that she would “incur predicable and foreseeable tax penalties to cash in the retirement funds,” and ruled that, if it accepted her argument, “it would be forced to speculate when—or even if—she would cash in the accounts.” The trial court held that its division of property reflects more accurately and equitably the present value of the estate.

 

Call a Michigan Divorce Attorney Now to Schedule a Consultation

A Michigan divorce attorney can assess your situation and provide guidance for how to make the division of property as favorable as possible. Contact Michigan divorce attorney Cameron C. Goulding to discuss your options. 

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