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Do courts consider tax consequences when dividing property?

Michigan, and the rest of the United States, has experienced a trend regarding marriage in the last couple of decades. The divorce rate has declined, but one explanation for this could be due to the declining marriage rate and millennials deciding to marry later in life. While many people have delayed marriage, they still have children, as displayed by the fact that 42% of children born in Michigan are from unmarried adults. 

While it is great to see the divorce rate declining, the truth of the matter is that it still impacts people from all walks of life. There are many considerations to make during a divorce, and it is important for all parties involved to not overlook anything. The division of property, such as the family home, cars and bank accounts, is always a contentious issue. However, the court also needs to divide retirement accounts and pensions, which requires the spouse who withdraws funds to pay taxes on that money. It leaves many people asking if the court considers these tax implications when determining how to divide assets. 

Courts determine an equitable division of assets

In Michigan, courts do not have to consider taxes when dividing marital property. This is due to the fact that the court has an obligation to divide property equitably, which is different from dividing it equally. The law does not consider it a problem if one spouse has to pay more in taxes down the line as long the division is equal at the time of consideration. 

This means the spouse with the retirement account would still retain half of the assets, but the other spouse, who would most likely want to withdraw the funds immediately, would end up paying taxes on it. This could come out to nearly half the withdrawal. One reason why the courts may not allow this is due to the fact that if it accepted this argument, the court would need to speculate exactly when the spouse would cash-in the accounts, which the spouse could conceivably delay. 

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