• Frequently Forgotten Divorce Asset: Loss Carry-Forwards
  • January 28, 2015 | Author: Mervyn Braude
  • Law Firm: Jaburg Wilk - Phoenix Office
  • Loss carry-forward is a frequently forgotten asset in divorces. Whether the loss arises from the operation of a business (Net Operating Loss) or sale of stocks (capital loss), it is a valuable asset which may be used to offset either future income or capital gains.

    Currently, the Internal Revenue Code restricts claiming capital losses in excess of capital gains up to $3,000. However, since losses can be claimed on an ongoing basis, they can be extremely valuable. In the case of a Net Operating Loss, it can be carried forward up to 20 years.

    Like all property, how to divide the carry-forward loss must be considered. If the loss arose in connection with separate property, the right to use the loss should properly be awarded to the owner of the separate property. Conversely, if the loss arose from community property, the carry-forward should be split between the parties. Complexity arises when the loss is mixed between separate and community property or arose from property which changed classification from separate to community or vice versa during the marriage. Loss carry-forward allocation requires in-depth analysis. The calculation is complex and once identified, parties should consult with a qualified tax professional to determine how best to utilize the loss-carry-forward.