After filing joint returns I will have a huge capital loss carry forward this year. What happens to it if I get divorced?
(nothing planned... just wondering)
After filing joint returns I will have a huge capital loss carry forward this year. What happens to it if I get divorced?
(nothing planned... just wondering)
I think it would depends on your divorce decree.
There is a Treasury Regulation that allocates carry forwards to the spouse who owned the assets that gave rise to the loss. If the assets were jointly owned or were community property then the carry forward is shared evenly. If the loss came from separately owned property, the loss stays with the spouse who owned the separate property.
However..... you get divorced in State courts. State courts have treated a loss carry forward as marital property. State courts can divide marital property as they please. They can't over ride federal law. I.e., they can't assign Spouse A's loss carry forward to Spouse B for tax purposes. So, if the court decides that the loss carry forward is a marital asset to be shared in a way that is inconsistent with federal tax law, the court will make up the difference by awarding the spouse some other assets.
Is this documented somewhere? (i.e. what the court awarded to make up the tax difference). It would make my job easier!
-Mark Bole
The treasury reg is 1.1212-1(c). The other stuff is conversations with attorney relatives who use to handle divorces.
In many states, it is embodied in their statutes. E.g., see Indiana Code Section 31-15-7-4:
I wonder how they're valued. Some people have losses that will take centuries to recapture unless they get lucky with capital gains.
Seth
I have no idea, Seth. But everything I have read on this subject leads me to believe that the courts have substantial leeway in making that determination. The loss is only as good as the tax benefit. I would think that a judge or master would take that into consideration.
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