Planning for divorce and understanding tax considerations, I found this TurboTax article helpful:
That article has the following paragraph about Asset Transfers:
When a divorce settlement shifts property from one spouse to another, the recipient doesn't pay tax on that transfer. That's the good news. But remember that the property's tax basis shifts as well. Thus, if you get property from your ex-spouse in the divorce and later sell it, you will pay capital gains tax on all the appreciation before as well as after the transfer. That's why, when you're splitting up property, you need to consider the tax basis as well as the value of the property. A $100,000 bank account is worth more to you than a $100,000 stock portfolio that has a basis of $50,000. There's no tax on the former but when you sell the stock, you'd owe tax on the $50,000 increase in value.
We have a non-liquid private stock asset that can only be redeemed during a certain time of the year. We will include in our divorce decree the division of the value of that stock, which will have to occur post-divorce. The payments for redeeming the stock will likely be monthly payments over the course of several months. Using an example of a stock portfolio of $200K that has a tax basis of $50K, if $100K is redeemed and transferred to an ex-spouse, who is responsible for the tax of that redemption?
