30 Dec I inherited bonds. How will the tax bill count in my divorce?

Q. My mother passed in March and left me savings bonds that she inherited from her mother. The bonds were fully matured so when they transferred to me, they had to be cashed in. Taxes were not paid on them so I am responsible for paying the tax on roughly $160,000 of interest. Unfortunately, my wife just told me she wants a divorce. What are my best options when it comes to filing my taxes in the spring? If we file jointly, will I owe her money because we will have a larger tax bill on my inheritance? Should I file separately so it doesn’t affect her taxes? Will that greatly raise my tax bill?
— Divorcing

A. We’re sorry to hear about your mother and about your divorce.

It’s good that you’re starting to think about this tax burden now.

Under New Jersey law, inheritances and gifts received from third parties remain the separate property of the recipient spouse, with few exceptions, said Jeralyn Lawrence, a family law attorney with Lawrence Law in Watchung.

One such exception would be if the funds were comingled, which means mixing separate, exempt property with marital property, she said.

“The inherited savings bonds will remain exempt for so long as they are maintained separate and apart from all marital assets,” she said.

As you noted, there will be tax implications from cashing out these bonds, Lawrence said.

“Taxes generated as a result of filing a joint tax return alone does not impact the separate nature of the inheritance itself,” she said. “However, the spouse that did not receive the inheritance will likely receive a credit for his or her share of the taxes paid on the separate property.”

The amount of taxes incurred as a result of cashing out the bonds will depend on a variety of factors, she said, so you should speak to an accountant and attorney who specializes in family law before deciding whether to filing a separate or joint tax return would be more beneficial.

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This story was originally published on Dec. 30, 2021.

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