What are capital gains?

Capital gains are the amount by which proceeds from the sale of a capital asset (the marital home) exceed the original cost. The law of capital gains with regard to housing has changed significantly over the past few years, which has created some confusion.

If capital gains do not exceed a certain amount, a taxpayer may exclude them, up to that amount.

In a property settlement, careful consideration must be given to capital gains from the sale of investments. For example, when dividing or selling equities upon divorce, it is very important to recognize any short-term or long term gains that will be paid upon the sale of the equity holdings. The settlement might consist of each spouse getting 1,000 shares of Walmart stock. This may sound like an even deal, but if one block of the 1,000 shares was purchased at a much cheaper price per share than the other 1,000 shares, the one spouse will have a greater amount of capital gain taxes to be paid when the shares are sold. Also the length of time of ownership of shares of stock will determine whether or not it will be taxed as a long-term or short-term gain.