DIVISION OF PROPERTY AND TAX CONSEQUENCES

By Tamie Jo Morog

When dividing property during a divorce, Indiana is considered an equitable distribution state, which requires the courts to divide the property in a “fair” manner to both parties. The court must decide what that property’s value is and how it is going to be divided. The courts focus on factors such as the term of the marriage, what property each party brought into the marriage, the earning power of each spouse, responsibilities of each spouse in raising their children, and the tax consequences of the asset distribution and the debt allocation. 

The State of Indiana is a fifty-fifty presumption state meaning the court starts with the presumption that a fifty-fifty division of the net marital estate is appropriate. Each party is required to disclose all information regarding the assets and debts of the marriage. This information is used so that the Court can divide and determine the assets that were acquired during the marriage, the value of that asset, the current debts of the marriage, and the amount of that debt. Each party is responsible for the debts incurred during the marriage with some exceptions. 

Under the general rule of 1041(a) of the Internal Revenue Code, a transfer of property to a former spouse incident to divorce will not cause recognition of a taxable gain or loss. A transfer of property is incident to a divorce if the transfer occurs within a certain amount of time after the date on which the marriage ceases or if it is “related to the cessation of the marriage.” A “cessation of marriage” requires that the transfer is pursuant to a divorce or a separation instrument and occurs not more than six years after the date on which the marriage ceases. A transfer of marital property rights, under a dissolution decree, is also not subject to gift tax. It is important to speak to an attorney when dividing the marital estate because of the tax consequences that can result. 

Information provided by the law firm of Kirtley, Taylor, Sims, Chadd & Minnette, PC. For more information contact them at 317-550-4333 or visit them online at www.KirtleyTaylorLaw.com.