After a divorce in California, and distribution of properties owned by husband and wife the retirement benefits usually would be entirely given to the employee spouse.
The transfer of other properties to non-employee spouse to offset the distribution is NOT treated as a taxable event. It is not a gain nor a loss.
The Transfer is treated ( for the tax and capital gain purposes) as a gift.
But if the employee spouse decides to award the pension to the non-employee spouse, the money now received by the none-employee spouse now maybe taxable.
IRS imposed taxes on a similar situation on a non-employee spouse while the counsel argued that this is NOT taxable. The case was taken to higher courts and the decision was not a clear precedent for receiver of the income.
In general Married couple are allowed ( but are NOT required) to do joint tax returns. The parties in dissolution file their taxes separately, but the court has the authority ( although it may rarely exercise it) to ask the divorced couples to file their taxes jointly, even after or during divorce.
Because of this uncertainty, the counsel for non-employee spouse therefore must request for provision indemnifying her client for any tax liability this doctrine of “Assignment of Income” might create.
In the event each party receives benefits directly under the plan, each is responsible for the taxes under the benefits.
This is a Divorce legal blog. It is not intended to be used as legal advice. For further information please contact the law offices of attorney Ramona Kennedy.
Ramona Kennedy (Attorney) received her Jurisprudence Doctorate in America and is a licensed attorney in California (USA).
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