Angelina Jolie & Brad Pitt Divorce – Tax Bill Could Exceed 100 Million Dollars

Angelina Jolie & Brad Pitt Divorce – Tax Bill Could Exceed 100 Million Dollars

Angelina Jolie is kicking Brad Pitt to the Curb! And if her lawyers have their way, says David Selig of Selig & Associates, she’s going to stick her has-been husband with a hefty tax bill. Now that [Brad Pitt’s] legendary looks are fading, and his career is slumping, Angelina is filing for divorce citing (of all things) “irreconcilable differences.” But Brad is still the man, says Selig, and he’s sure-as-hell not going to let anyone push him around. In fact, if anyone’s going to get stuck with a tax bill, it’s going to be her, predicts Selig. 

Divorce and taxes are complicated, as most divorced people can attest. Particularly when taxes are owed to the State Tax Department and Federal Government, and property has to be divided. Nota bene, most transfers between spouses or former spouses are non-taxable. To this end, IRC Section 1041 provides that a transfer between spouses, or former spouses, “incident to divorce” is not immediately taxable in most circumstances, because most transfers are treated gifts (for tax purposes). However, the transferee takes the transferor’s tax basis in the property (and all of the tax consequences associated therewith), In a nutshell, taxable recognition of gain or loss, is deferred until the recipient sells the property. However, there are some notable exceptions, e.g. when recipient spouse is a non-resident alien, etc. Moreover, Treasury Regulation 1.1041-IT(b) states that a transfer is “related to” the cessation of the marriage when the transfer is required under the divorce or separation instrument, and the transfer takes place within six years from the date of the divorce.” If the transfer is not made pursuant to a divorce or separation instrument, or occurs more than six years after cessation of the marriage, it is presumed to be unrelated to cessation of the marriage. See: Treas. Regs. § 1.1041-1T, A-7; see Ltr.Rul. 9306015. This presumption may be rebutted “only by showing that the transfer was made to effect the division of property owned by the former spouses” at the time their marriage ceased. Regs. § 1.1041-1T, A-7. And this presumption may be rebutted by showing that (i) the transfer was not made within the one-and six-year periods described above because of factors which hampered an earlier transfer of the property, such as legal or business impediments to transfer or disputes concerning the value of the property owned at the time of the cessation of the marriage, and (ii) the transfer is effected promptly after the impediment to transfer is removed.”  Complicated stuff, says Attorney Bradley Dorin of Selig & Associates.

But wait, there’s more. For most filthy rich celebrities, moguls and business panjandrums, the distribution of property is the most important aspect of a their divorce – and if they don’t meet the requirements set forth in IRC Sec. 1041 or Sec. 2516, property transfers included in a divorce decree are subject to income taxes or gift taxes, respectively.

Property acquired by the spouses during their marriage, e.g., homes, retirement plans, vineyards, production companies, financial interests in restaurants, etc., generally qualify as marital property with the exception of qualified retirement plan assets covered under ERISA, viz. Employee Retirement Income Security Act, says Bradley Dorin. Ultimately state law governs the division of marital assets in a divorce, and state laws differ drastically as to who gets the Goldmine and who gets the Shaft.