Due to receive a sum of $$ from business value in divorce settlement, wanting to know if I will have to pay taxes on it or not if its a prop split. If I'm correct it doesn't count as alimony income, I just don't want to be screwed in the end, not actually receiving what was agreed upon, since taxes would lower it significantly. This money will be put away, so it's not just play money. I want it to be fair since he will go on to make more and grow the business and I'll receive nothing further. Please advise, thanks!
The tax implications, if any, really depends on your judgment and how this was identified. If it was identified as a property equalization, meaning one spouse is receiving a greater value of assets and is paying the other spouse an amount to equalize that imbalance, it is typically not a taxable event. However, if the payout is identified "as and for additional support", as a lump sum support and asset buyout, or something that links it to support, that would normally be taxed, unless your judgment specifies that it will not be taxable to you nor deductible to your ex. There are other circumstances that could make it taxable. Again, it depends on your judgment document.
I would strongly recommend that you have a lawyer review your judgment so that you have a clear answer. A CPA should also be able to provide the information. Unfortunately, there may be very limited options, if any, if the deal has already been signed and entered.
This really is both a tax and divorce question, but I recommend re-categorizing it to Divorce because it really does depend on the language in your judgment. You will likely get more input under the divorce category. But still check with your CPA as well.
I hope this is helpful to you.
Since the information provided in your question is very limited and I have not had an opportunity to review all relevant facts, information, and documents, you should not rely on any specific responses to your questions. The information offered here is general in nature given that the slightest bit of additional information could change a specific answer (i.e. we separated 1 year ago and he has been paying all my expenses. Q: Do I owe him that money back? A: Yes. But what if he used money from a community asset, like a retirement account, to pay it back. A: maybe some or maybe none). In short, consult an attorney to review all relevant information so s/he can properly and accurately advise you. This free service IS NOT a substitute for legal advice and should not be considered legal advice at all.
The division of your community property assets is not a taxable event. Alimony which is called spousal support in California is taxable to the supported party and deductible to the payor (supporting party). They are two separate issues. Be sure to take your Marital Settlement Agreement to an experienced family law attorney to be reviewed before you sign it so you can be sure the language is appropriate.
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Under tax code section 1041, not taxable,. https://www.law.cornell.edu/uscode/text/26/1041
All of Ms. Straus’ responses are intended as useful information, based solely upon the facts stated in the question, and are not to be relied upon as a full or complete legal opinion. They may not be what you wished to hear, they do not create an attorney-client relationship. Ms. Straus has been licensed to practice law in California for 33 years. Ms. Straus regrets that she does not provide follow up free advice via email. She also regrets that blunt responses may be taken as "rude" by those who wished a different opinion. Good luck.
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