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Know long-term asset values before getting a New Orleans divorce

Not long after the announcement of Katie Holmes's split from Tom Cruise, legal advisors began to guess how the high-asset divorce might play out. No details have been revealed, but speculation can still offer property division lessons for New Orleans couples considering divorce.

A purported prenuptial agreement allows Holmes to pocket $3 million for every year of the marriage, which totals at least $15 million. Experts say that Holmes is certain to receive more than that, at a minimum, in addition to child support. The amount of money involved in this particular divorce is quite substantial.

Not everyone who divorces has millions to split, but most spouses are rightfully concerned that the marital assets they share are divided fairly. Property division during divorce is not as simple as drawing a straight line down the middle of an asset valuation sheet. The present value of assets can change, for better or worse, in the future. And what about the taxes?

Asset transfers between spouses in marriage or divorce, under IRS Section 1041, are not subject to federal tax, unless couples wait too long to make the switch. "Incident to divorce" post-decree transfers are nontaxable, when transfers relate directly to the settlement terms or happen within one year.

Estimating present and future asset values is crucial. For example, a married couple who purchased a home for $500,000 may have a property worth $1 million today. If one spouse is awarded the marital property and decides to sell, the taxable gain is $500,000. The tax bill would not be shared by the ex-spouse who forfeited the house during the settlement.

Financial, tax and legal professionals may be needed to sort out the genuine, long-range value of marital assets. Knowing the value of all the cards at the settlement table is critical before a decision to divide them is made.

Source: Forbes, "Katie Holmes Divorcing Tom Cruise, Scientology And Taxes," Robert W. Wood, June 30, 2012

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