What frequently happens in a divorce that creates tax consequences?

In order to pay a settlement, sometimes spouses must disturb assets in a way that creates tax consequences. For example, taxes may result when a party must withdraw funds from restricted accounts, such as a pension fund where penalties apply for premature withdrawal.

The forced sale of a primary residence can create tax consequences when the couple cannot use the capital gain exemption.

Large settlements may force one spouse to liquidate separate property and thus expose him or her to unsought capital gains tax.