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Tips for divorcees in light of proposed tax increases

In 2021, the president proposed a tax rate on the wealthiest 1% of Americans. The current income tax rate in this demographic is 37%, and the increase would raise it to 39.6% on income and capital gains. The proposed tax hike would impact people who earn over $400,000 per year, and its intention is to fund social programs.

CNBC finds that, if implemented, the proposed increase could have a negative effect on divorcing couples in this tax bracket. For example, they could get a smaller tax write-off for the sale of a home and have to pay higher capital gains taxes on the proceeds. Higher taxes could also mean fewer assets to split.

The proposed tax increase has not received Congress’s approval, and its future is uncertain. Nevertheless, there are things that high-asset divorcing couples can do to protect their interests.

Make changes to investment portfolio

By swapping out investments before any proposed changes to the law take place, divorcing couples may be able to avoid higher taxes on the profits they earn.

Fight for cash

Assets that could net significant capital gains, such as the sale of a home, could lead to higher tax penalties.

Act quickly

Because it is difficult to predict when or if the proposed tax changes will take place, divorcing couples may be able to protect their interests by filing for divorce, if they have not already done so, and finalizing the divorce as quickly as possible.

Even among high-asset couples, the standard of living can plunge dramatically following divorce. If implemented, the proposed tax changes could make paying for two households following the split more difficult.

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