When Katie Holmes filed divorce papers in court on the East Coast, the media lit up with the news. Stories discussed a variety of issues that may be involved in the couple's divorce. One report in Forbes indicated that the couple had entered into a prenuptial agreement that will give Holmes $3 million for each year of the couple's marriage, but the $15 million from the prenup is not expected to be the end of the property settlement in the divorce.
In the Cruise and Holmes case, it remains unclear whether the prenup actually exists or whether or not the rumors about the prenup are mere speculation.
News reports point out that, generally, property settlements in divorce do not directly create a taxable issue. However, in high-asset cases, the cost basis of different properties may implicate future tax issues. For instance, a vacation home with a low cost-basis, may generate a higher tax liability down the road when the home sells than a high cost basis property.
Appreciation in property values may seem somewhat a foreign concept in today's marketplace, but theoretically, the housing market is expected to rebound and with appreciation over cost basis, capital gains taxes can be a future issue. Many properties that have been held for years also can still have very low cost-bases as compared with their current market value.
Commentators say that Holmes and Cruise apparently hope to keep much of the divorce issues away from the media, and the public eye. One source recently told the Los Angeles Times that Holmes wants the divorce to be private and that she hopes that there will not be any major fights over money issues. But the source also indicates that custody issues over the couple's 6-year-old daughter are a big concern.
The media has speculated that Holmes may be concerned about how the child will be raised. There also remains speculation that if a prenup exists between the two divorcing parents that contains child support and child custody issues, those portions of the prenup is more likely to receive scrutiny from a family court judge.
That is, judges generally enforce money and property issues outlined in a premarital agreement, and may enforce some child custody or support issue-but family court issues involving children also must keep the best interests of the child at the forefront. At times, issues of child support and child custody are subject to modification in family court.
Obviously, the Holmes-Cruise divorce will not be controlled under Texas law. The current case is filed on the East Coast, but some commentators wonder why the case was not filed on the West Coast, where the couple has spent most of their time. Some speculate that the reason may be linked to differences in state laws about freedom of information, and the couple's desire to keep many of the divorce issues more private.
- Forbes, "Katie Holmes Divorcing Tom Cruise, Scientology And Taxes," Robert R. Wood, June 30, 2012
- Los Angeles Times, "Katie Holmes wants Tom Cruise divorce details kept private," Richard Winton, July 6, 2012