Posted by Anna Traugh on October 3, 2023
You might be asked to come up with the cost basis, or “basis”, of some assets during your divorce. The basis is what you paid, or invested, in an asset. For instance, if you paid $150,000 for your house and then spent $20,000 on an addition several years later, your basis is $170,000. If you bought 100 shares of Apple stock in 2019 and paid $70 per share then your basis is $7,000. When an asset like a house or a stock holding is sold, the basis is subtracted from the sale price to determine the taxable portion. Today Apple trades for around $170 per share so if you sold your 100 shares, you’d have a taxable gain of $10,000.
In divorce basis can be very important. An investment would be worth less than you think if you must pay a lot of tax when you sell it. Depending on your tax bracket, you may not want to accept an asset that has the potential of being highly taxed when sold. On the flip side an investment that is losing money, while not an ideal situation, may help lower taxes if sold and could be attractive for that reason.
Often, we recommend splitting the assets in taxable investment accounts evenly so that both spouses share equally in gains and losses.
If you are concerned about the tax liability of an asset you may be receiving in a divorce, be sure to consult your accountant or a Certified Divorce Financial Analyst.