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DIVORCE 30: Trial court not required to consider the tax consequences of property division.

The parties were married in 1992, and Plaintiff filed for divorce in July 2016. The marital estate was valued at $806,004.46, and the parties agreed to an equal distribution of the assets.

From the parties’ real estate, investment and banking assets, titled assets, and personal property, Plaintiff would receive $71,488.11 and defendant would receive $384,928.56. From retirement assets, Plaintiff would receive $273,896.17 and defendant would receive $71,488.11. To equalize the division of real estate, investment and banking assets, titled assets, and personal property, defendant would pay Plaintiff $154,618.47 in Non-Retirement Assets. Similarly, to equalize the division of retirement assets, Plaintiff would provide defendant with a Qualified Domestic Relations Order (QDRO) for $101,204.03 from her retirement assets.

Despite their agreement to the above, the parties disputed the method for completing the equalizing payments. Plaintiff proposed that the $154,618.47 owed to her be paid in full and in cash. However, Defendant submitted that he pays $54,618.47 in cash and, for the other $100,000, offset this from the $101,204.03 owed to him by Plaintiff, such that Plaintiff would owe him only $1,204.03 from her retirement assets.

Plaintiff challenged Defendant’s proposal, arguing that as a result of tax consequences the $100,000 offset was not equal to $100,000 paid to her in cash because once she withdrew the $100,000 from her retirement accounts she would have to pay taxes and, if she withdrew the funds early, she would also incur a penalty for early withdrawal.

In lieu of a trial and hearing, the parties submitted briefs to the trial court. The trial court ruled in favor of Defendant’s distribution proposal, concluding that it would not consider the tax consequences of the distribution. In doing so, the court rejected Plaintiff’s argument that she would “incur predicable and foreseeable tax penalties to cash in the retirement funds,” and ruled that, if it accepted Plaintiff’s argument, “it would be forced to speculate when—or even if—she would cash in the accounts.” The trial court found Defendant’s “position to more accurately and equitably divide the present value of the estate.” Plaintiff moved for reconsideration, asserting in an affidavit that she intended to immediately withdraw the retirement funds. The court denied the motion.

Plaintiff argues that the trial court erred by declining to consider the possible tax consequences arising from the selected distribution method.

In this case, the trial court could, but was not required to consider the tax consequences of the property division. In the proceedings, Plaintiff initially stated that she intended to withdraw funds from her retirement accounts sometime in the future, and she submitted evidence showing potential tax penalties arising from the withdrawal of funds from her retirement accounts. Based on the evidence presented, the trial court determined that Plaintiff had not established that the tax consequences were reasonably likely to occur and were not merely speculative. Given the record before the court, its decision was a reasonable and principled outcome and not an abuse of discretion.

In order to protect your parental and financial rights, it is important to have an experienced and understanding divorce attorney by your side at every step of the way. At the Plymouth and Ann Arbor law firm of Aldrich Legal Services, our attorneys have the skill and experience you need to address all family law issues that may arise during your divorce.

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