TurboTax

File with experts
File your taxes
Experts at your fingertips

An expert helps with your taxes, or does them for you
TurboTax Expert Full Service

TurboTax Expert Assist

TurboTax Self-Employed
Prior year taxes
File myself
File myself
Do it yourself

We'll guide you step-by-step
TurboTax Do It Yourself

TurboTax Self-Employed

TurboTax Desktop
TurboTax Free

Activate your product

Prior year taxes
Business
Business
Business taxes

Get your T2 corporate return done right, your way
TurboTax Business

TurboTax Business Desktop
Tax situations
Tax situations
Tax situations

Find extra guidance for your big life moves
For investors

For 25 and younger

For self-employed

For new to Canada

For life changes
Resources
Resources
Resources

Explore tax tools, get tips, and read reviews
Personal income tax calculator

RRSP savings calculator

Learning hub

TurboTax support (FAQ)

TurboTax community
Pricing

Level 1

Question

Tax on divorce settlement

Forum|Forum|7 years ago
June 6, 2019
6 replies
8 views

No text available

TurboTax Premier Online

Opus 17

Level 15

Generally, money that is transferred between (ex)spouses as part of a divorce settlement—such as to equalize assets—is not taxable to the recipient and not deductible by the payer. This is different than alimony, also called spousal maintenance, which is taxable (and deductible) unless the settlement specifies that it is not. In some cases, a settlement might include an asset transfer and a lump sum of alimony instead of periodic payments—in that case the alimony will generally be taxable.

However, if the asset transfer includes a tax-advantaged retirement fund like a pension, annuity, IRA or 401(k), then the money will be taxed by the spouse when they withdraw it. Such plans are always taxable on withdrawal because the money was not taxed when it was contributed. If you receive IRA-type assets in a divorce, you may have several options on what to do with it, with different tax consequences.

gunthr

Level 2

what about when you receive non-qualified stock options as settlement for the equity in the marital residence? I received a ton of options, exercised half of them, need to sell the other half. Is that considered income? Because really; it is just the equalization of the marital assets - something I already owned.

Mercadalevans58

Level 2

I am 62 and will be receiving settlement from my x-spouse retirement account. I would like to take out a small portion of money. Will I only be

penalized 10%, and will I have to file long form tax’s next year.

VictoriaD75

Level 12

If you are over age 59 1/2, you will not be subject to the 10% tax penalty for early withdrawal of retirement distributions. However, the amount of your distribution will be included in income in the tax year in which it was received.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

Alesiav1

Level 2

My mom is buying my dad out of the house as part of there divorce agreement. Do you know if the amount my money gives my dad for the buyout, if it’s taxable?

Mike9241

Level 15

Besides alimony, divorce usually contains a property settlement as well. Many times, it is not recommended for a couple to equally divide marital assets. It is better to give one party a lump sum settlement for equity interest. For instance, when the couple has a home with a mortgage, it is common for one party to keep the house and pay the other spouse the equity as a property settlement. No taxable gain or loss is recognized.

MAKE1

Level 2

I divorced in 2016. I left my ex our residence, at the time it had $40-50k in equity. For that I was to receive a lump sum of $15k. She did not have those funds so she pulled it out of her OPERs retirement in my name. Its been a few years but I am sure my attorney told me that it was not taxable but now I am receiving notice that I am being taxed on it. Is that taxable income?

VolvoGirl

Level 15

You are being taxed on it? The retirement distribution is taxable. But how is your name on her distribution? Was part of her retirement account put into a separate account for you as a QDRO? Then when you take it out it is taxable. Whoever got the 1099R it is taxable.

rkurth76

Level 2

If my ex takes money out of her 401k to try to pay me my portion of the equity in the home, instead of refinancing the house, is that taxable and, if so, will she pay the tax as she pulled it out of her 401k, or would I be responsible for the tax? Thanks!

Opus 17

Level 15

@rkurth76

If person A withdraws money from their 401(k), that is taxable to person A, no matter what they use the money for.

Furthermore, you generally can’t withdraw money from a 401(k) unless you are separated from service with the employer, or you meet the definition of a hardship. Employers are not required to offer hardship withdrawals, and this situation may not meet the definition of a hardship even if the employer does offer hardship withdrawals.

A direct transfer of retirement assets from person A into a retirement account owned by person B under a QDRO is not taxable to person A, and it is taxable to person to B whenever person B withdraws the money, either now or in retirement. What you are asking about is not a direct transfer, this is person A withdrawing the money to spend it. How they spend it doesn’t change the tax and penalty.

Kvdv

Level 2

@Opus 17 I have a question

My ex-husband and I were divorced in August 2021. He stayed in the house, I moved out to NC. Part of the divorce settlement was for him to pay me 2 years spousal support $800 per month and $50,000. He has had trouble coming up with the money until now. He is selling the house and paying me my money from the proceeds.

The house he sale is on his name only. He owns the home before we got married. The home it is only in my ex-husband’s name. We don't have jointly property together during our married. Will I have to pay taxes on this $50k money?

I have been told in general, division of assets is not taxable to me or deductible by my ex. then I don't have no tax consequences from the sale. If my ex pays me $50k then it's not taxable to me no matter how my ex got it correct?

NCperson

Level 15

@Kvdv the way you describe it, the $50,000 is a form of alimony. Since the divorce occured after 2018, the money is not taxable income to you nor is it deductible by him. The same is true for the $800 per month - not taxable income to you nor deductible by him

Kvdv

Level 2

@NCperson The way I described $50k is part of divorce settlement. But the home owes by my ex name. He have to gave me 50k as part of divorce settlement. And 2 years spousal support. I have reach out to CPA and explain the same thing I asks the question her. The CPA told me to pay for consultation and bring my divorced degree. But they just want to charge me 100$ to look at it. As if the first step I would like to know if my circumstances it taxable. But if not is no reason for me to go to CPA and she charge me 100$ and answer my question that I don’t have to pay any taxes.