Readers who are considering divorce in British Columbia may be wondering how their income tax might be affected once the divorce is finalized. The answer to this question may be complicated, depending on the person’s situation. For example, as part of the division of property, a residential property might be sold. The property could be designated as the primary residence, which would allow the owner to shelter the capital gain generated by the sale from tax.
If a couple owns more than one property, such as a condominium in the city and a cottage in the country, it may be possible to shelter a portion of the capital gain tax on each property by declaring each one a primary residence for a portion of the total time that the couple owned the properties. This protection from taxation is due to the principal residence exemption provided in the tax code. However, a homeowner or family unit can only designate one property per year as a principle residence.
If a divorce occurs, any tax-shielding years claimed by the couple will still apply to the individuals. For example, a family that owns two properties for 10 years and sells one may apply the exemption to that property. If they divorce, one party may take possession of the second property. If that person chooses to sell that property after five years using the exemption, they will still be required to pay taxes for the other ten years that the property was owned before the divorce because those years were claimed previously.
Individuals who own multiple properties, stock portfolios, retirement accounts and other assets may face difficulties in assessing, valuing and dividing their complex estates. A lawyer with a background in high-asset divorce may have in-depth knowledge regarding the complexities of this type of property division. Throughout the divorce process, a lawyer may work to protect an individual’s interests and ensure that the finalized divorce agreement is equitable and fair.
Laughlin & Company Lawyers Mediators
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