Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

 Pre-nuptial can ease financial uncertainty of divorce

- by Alan Duvall 

Published in Dayton Daily News  May 27, 2007 

“There’s a way of transferring funds that is even faster than electronic banking.  It’s called marriage.”  –James McGavran 

Emotional considerations aside, divorce can be a daunting financial experience for families. 

In Ohio, divorce judges are granted broad discretionary powers to determine the equitable fairness of financial settlements.  The power so bestowed is intended to achieve a result deemed most fair in each case, but has the unintended consequence of lacking distinct formulas which can be forecasted with accuracy – thus leaving the parties with a collective air of uncertainty. 

Uncertainty can be minimized by use of pre-nuptial agreements negotiated before marriage.  Such marital contracts may chart financial consequences in the event the marriage dissolves in the future, at the obvious personal risk of placing money ahead of emotional considerations. 

Lacking such written foresight, separating couples discover all marital assets must be divided between parties.  If catalogued, “separate assets” brought into the marriage as well as inherited and gifted properties are allocated to the original owner.   

Other “marital property” accumulated during marriage is typically divided evenly between the parties in accordance with respective values.  

Some separate assets may be converted into marital with unintended consequences.  For example, a party’s separate bank account may lose its individual status if transferred into a joint account or used to acquire a jointly owned residence. 

The division of property in itself is not considered a taxable sale and thus produces no tax consequences.  In addition, all divided property retains its original tax characteristics.  However, parties should still consider property tax “basis” in the division process.   

To illustrate, Stock A worth $10,000 with a cost basis of $10,000 would yield no tax on sale, as opposed to Stock B’s $10,000 value with zero cost basis saddled with $2,000 tax on sale.  Clearly Stock A is effectively worth $2,000 more than Stock B, a definite factor in dividing the assets.   

“My wife and I were happy for 20 years – then we met.”  –Rodney Dangerfield 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.  Previous articles archived at www.duvallcpa.com.