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By Jun 30, 2023 Posted in Divorce

In any divorce case, the potential tax implications regarding property division should be carefully considered. The tax consequences of a farm divorce can be even more complex due to the significant assets involved. Failure to consider and appropriately manage these implications before finalizing your divorce can result in significant tax penalties and future financial hardship. If you own a farm and are considering a divorce, only agree to any division of property once you have consulted with an experienced farm divorce family law attorney who can provide you with the guidance you need. 

The Land Itself

In most cases, Iowa courts will generally not require the sale or partition of the farm, specifically when the farm was inherited by one of the divorcing spouses. However, parcels or farms purchased during the marriage may be considered marital property, and one spouse may insist that they retain ownership or be paid half of the proceeds from the sale. Whichever side you may be on, you need to consider the tax implications: 

  • Whoever owns the farmland after the divorce will be responsible for ensuring that the property taxes are paid. While farmland is taxed at a more favorable rate than residential property, this could be a significant liability depending on acreage. If you are considering partitioning the property, you want to consider whether the property will produce enough income to justify the tax burden. 
  • If you choose to sell the farm or a portion of the farm and split the proceeds, you must remember that the proceeds will be subject to capital gains tax. If you are relying upon the proceeds to make a fresh start, you could have significantly less money than you planned after paying the taxes. 
  • If you or your spouse inherited the farm, determining the cost basis will be critical to determining your tax liability if the property is sold. Ultimately, the tax liability in this scenario may justify keeping the farm intact and finding other ways to split assets. 

Other Farm Assets

Tax considerations can also be involved in determining how to divide other farm assets. The sale of livestock and crops may be exempt from sales taxes, while other farm assets are not. Do not assume that the sale of assets is tax-exempt just because they are farm assets or were exempt from taxes when you purchased them. In addition to sales taxes, certain assets may be subject to capital gains taxes. The tax implications involved in a farm property settlement can be quite complex. A family law attorney with experience handling these cases can help you minimize the potential liabilities. 

Contact Simpson Legal Group to Discuss the Tax Implications of Your Divorce

Successfully navigating divorce as a farmer requires careful consideration of the tax consequences and other financial impacts. At Simpson Legal Group, we have decades of experience helping farmers with divorces and other legal issues. Contact us today at 712-256-9899 to learn how we can help you.

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50 Northcrest Drive, Council Bluffs, Iowa 51503
Phone: 712.256.9899

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