It happens, though it’s sad every time. Two people love, marry, perhaps buy a home, have children, and then . . . it goes up in smoke, and divorce looms ahead.

At Rigby Financial Group, we have supported a number of clients through divorce―it’s never an easy process, and no matter how mutually desired or how amicable, always a painful one.

It can also be a costly process, though there are ways to minimize this, if both partners are willing to come to the table and compromise.

But divorce can also have hidden costs, which reveal themselves over time, if you haven’t fully considered all aspects and potential tax consequences of certain moves or property divisions in advance.

Some financial aspects of divorce (and their tax consequences) are:

Alimony

For those who divorced before December 31, 2018, alimony payments are tax deductible for the payor and considered taxable income to the recipient.

However, under the provisions of the Tax Cuts and Jobs Act of 2017 (TCJA), that tax treatment was reversed―alimony payments are considered personal expenses and are therefore not tax deductible, while the income is not taxable to the recipient. The One Big Beautiful Bill Act of 2025 (OBBBA) left this change in place.

Division of Assets

Unless a divorce is unusually acrimonious, most couples want to be fair. But all too often, the divisions aren’t as fair as the divorcing parties think they are.

Because an asset’s value―and its tax treatment―is not based on the fair market value alone.

That’s what divorcing couple often overlook―it’s essential, in dividing marital assets, to take account of the couple’s basis in the asset, and how long the asset has been held.

Say the couple has a home currently valued at $750,000, with contents worth $120,000, and investments valued at $1,500,000. If there are minor children, they may want to keep the children in that home, at least until they reach age 18 (or some other age), along with the parent who has primary physical custody.

This couple might think a fair division would be to award the home and most of the contents (say $100,000, allowing for personal property of the non-custodial parent leaving the home with them) to the custodial parent, along with $335,000 of the investments.

It looks fair enough, on its face―but such a division might be less fair than the couple thinks.

Let’s say the home cost the couple $500,000; the value has appreciated by 50%, but if  / when it’s sold, up to $250,000 of that appreciation can be excluded from taxable gains (if the couple were to sell the home prior to divorcing, a total of $500,000 in gains could be excluded), assuming the custodial parent has lived in the home for at least two of the five years preceding the sale.

The investments, however, have also increased in value well above their purchase price. And, while they may have been held for over a year, thus qualifying for long-term capital gains treatment, rather than short-term, which gains are taxed as ordinary income, there is no amount of gain which can be excluded from the capital gains tax liability (unless realized gains are offset by realized capital losses).

So, the couple may be looking at quite different tax consequences for assets of equal fair market value.

This is why it is so important to consult your fractional CFO or other trusted financial advisor (as well as your attorneys, of course!) before your divorce and property settlement are written in stone. S/he can help ensure all divisions are equitable, or as close to them as possible, in the long-term as well as the immediate moment.

There are other property divisions, of course, which may come into play, as well, such as:

Retirement Accounts

Take a couple’s separate retirement accounts, for example. If contributions have been made during the marriage, as is likely, the accounts may, depending on the laws of your state, be marital property, at least in part.

But a couple can elect to simply keep their own account(s), and let the other party keep theirs.

These accounts may have equal, or nearly equal, asset balances, but if one partner has assets in a traditional IRA or 401(k), and the other has their assets in Roth accounts, the tax consequences are very unequal indeed.

• paid taxes on their contributions up front
• gets the benefit of tax-free growth―once a Roth IRA or Roth 401(k) has been opened for 5 years, and a given asset has been held in the account for 5 years, the gains are not taxable
• is not subject to required minimum distributions (RMDs)
• can, if they choose (and can afford to) leave the Roth account untouched to its beneficiary or beneficiaries, who will also owe no taxes on distributions, subject to the 5-year rules above

The partner with traditional retirement accounts:

• paid taxes on their contributions up front
• gets the benefit of tax-free growth―once a Roth IRA or Roth 401(k) has been opened for 5 years, and a given asset has been held in the account for 5 years, the gains are not taxable
• is not subject to required minimum distributions (RMDs)
• can, if they choose (and can afford to) leave the Roth account untouched to its beneficiary or beneficiaries, who will also owe no taxes on distributions, subject to the 5-year rules above

So, again, there will be a significant difference in the tax treatment of assets with the same fair market value.

These are only a couple of examples, but they illustrate how vital it is to seek expert financial guidance when contemplating divorce.

At RFG, we will be on both your sides at once, unlike your attorneys, who are duty-bound to seek the interests of only one of you (that’s their job!). Our job would be to help you reach an agreement which is fair to both parties. And we would listen with the same empathy to each of you.

Rigby Financial Group’s own team can help you determine what’s best for yours and, even more important, what’s best for you and your business.

Please click here to email us directly–Rigby Financial Group’s trusted, expert team are always at your service–that’s what we are here for!

Until next time –

 Peace,

 Eric