Marital Property Division Can’t Consider Tax Effects Unless Sale Now

Tennessee law case summary on property division factors, tax impact, and assets sales in divorce and family law from the Court of Appeals.

Kendra Kuebler Vachon v. Claude Vachon – Tennessee divorce tax effects.

Kendra and Claude Vachon were married in 1995 and had three children.  In 2011, the wife filed for divorce.  Some issues were settled, and a hearing was held after which the trial court valued and divided the marital property, awarded the wife alimony of $7,500 per month for 120 months, and decided other issues.

The husband appealed to the Tennessee Court of Appeals and raised a number of issues.  In particular, he argued that the trial court had failed to properly consider the tax consequences of awarding the husband his entire 401K account.  This was part of a marital property division in which the trial court had intended to make an equal division of the property.  He also argued that the trial court failed to take into account the proper amount of taxes to be deducted from certain stock the husband received.

When the court awarded the husband these assets, it had reduced the value assigned for the purposes of taxes.  But the husband argued that this reduction was insufficient, and didn’t take into account the full amount of taxes.

But the court of appeals quickly dispensed with this argument in the case of the 401K.  Previous cases had held that transfer costs and fees were not proper deductions in the absence of evidence that the party intended to sell an asset.  Here, there was no proof that the husband intended to dispose of the 401K in the near future.  Thus, it was not necessary to consider tax effects.

Also, there was no evidence that the husband intended to sell the stock in his medical practice.  In the absence of a forthcoming sale, the court of appeals held that it was error to reduce the value of the stock by any amount.  For that reason, the appeals court vacated this portion of the decree.

No. M2013-00952-COA-R3-CV (Tenn. Ct. App. Feb 27, 2014).

See original opinion for exact language.  Legal citations omitted.