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Pam Anderson divorce highlights property division tax issues

Actress Pamela Anderson, famous for her role in the California television show "Baywatch," gained a $1 million settlement in her divorce from her third husband. During the reportedly contentious split, Anderson raised tax issues with her ex-husband as they negotiated the divorce agreement.

Most divorces require the division of spousal property. U.S. citizens do not have to pay income tax on assets received through a divorce. IRS Publication 504 states that unlimited amounts of money or property can be divided between a divorcing couple. However, the nature of the assets could trigger tax consequences in subsequent years. The tax basis of a property determines its taxation in the future. If a person receives property that has appreciated in value and sells it, then that person alone is responsible for the taxes after divorce. If a couple takes the future taxes on divided property into account from the beginning, the various tax costs can be spread out between them instead of burdening one party.

Divorced couples face the likelihood of an IRS audit. To avoid costly tax surprises, a couple should consider taxes during the negotiation of a divorce. For example, a payer of alimony can deduct it as an expense, but the recipient must declare it as income that is taxable.

An attorney familiar with tax issues and divorces could advise a person during a complex property division. A person could then make decisions based on legal information about current and future tax burdens associated with the divided assets and manage taxes in the future. Furthermore, an attorney could represent the person during divorce negotiations and advocate for an equitable split of tax burdens.

Source: Forbes, "Pamela Anderson Divorces Rick Saloman Again, Gets $1M Settlement," Robert W. Wood, April 30, 2015

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