Divorce is psychologically, physically, and, yes, financially difficult. You and your soon-to-be ex-partner will be compelled to make and embrace decisions that will have a significant influence on your financial present and future position and stability. What is the most crucial thing to keep in mind? Do not enter the proceedings uninformed. In this article, we'll give you a look into some of the most pressing financial issues that may arise throughout a divorce.
Whenever a marriage ends, one of the first considerations you must make is how to divide the property you possess. Dividing property can be resolved through the state legislature or a court ruling since it would be a compromise and agreement for you and your spouse. There are now nine community property states (AZ, CA, ID, LA, NV, NM, TX, WA, and WI). All of these states have laws stipulating that any assets obtained by either spouse during the marriage are considered shared marital assets. In most divorces, joint marital assets are distributed evenly between the spouses. Aside from the special regulations of community property states, there are numerous options for dividing marital property. Surprisingly, many people reach a peaceful agreement over property distribution; nevertheless, if there is a disagreement about one or more possessions, there are a variety of fair approaches for determining who gets what.
One of the most popular is bartering, in which one spouse exchanges some items for others. For instance, the spouse may take the vehicle and equipment in return for the other spouse getting the yacht. Another way of distribution is to sell marital property and share the money evenly. Mediators are frequently utilized.
Even more challenging than distributing property in a divorce is determining who will be accountable for any debts accrued by the pair throughout their marriage. To do so, you must decide how much you owe and to whom. Even if you have 100% faith in your spouse, do yourself a courtesy and request your credit history from each of the major credit bureaus: Equifax, Experian, and TransUnion. Whatever debt you have in your name, even joint accounts with your spouse is recorded on your credit report. Examine your credit history to determine which debts are shared and which are solely in your spouse's name. At this stage, keeping the debt from growing any bigger while you're going through divorce proceedings is critical. The simplest method is to cancel shared credit cards while keeping one card in your name for emergencies.
After recognizing your debts and taking action to keep them from growing, it's time to select who will be liable for certain bills. There are various approaches to this, including:
Pay off your debts as soon as practicable. This is the simplest way if you have savings or assets to sell. You won't have to think about your spouse holding you liable for their share of the debt, and you'll be able to begin your new life debt-free.
Accept responsibility for the debts in return for additional assets from the property division.
Accept shared responsibility for the debts. Though this solution looks the most "fair," it leaves each of you the most exposed. Even if your ex-spouse signs an agreement taking accountability for the debt, you are still legally obligated if they do not pay.
Splitting Retirement Funds
If your partner has retirement funds, you are most likely legally entitled to half of them. The funds can be utilized for your retirement, a down payment on a home, relocation costs, or other current obligations. Make sure to follow IRS laws to prevent the 10% penalty for early withdrawal. The primary problem with dividing retirement funds is that, while the funds may or may not have been adequate for your joint retirement needs, your individual retirement needs are almost certainly substantially larger. As a result, to protect your financial future in retirement, you must examine not only how these assets will be distributed but also how you will keep contributing to them.
Individuals are often caught up in the most apparent and discussed divorce concerns, such as the distribution of property and debt, who will have custody of the children, and so on. As a result, many people fail to consider the tax ramifications of their divorce, which can cost them thousands of dollars or more. This is when having a certified public accountant (CPA) on your divorce team can be helpful. Divorce can result in the following tax issues:
Who will be entitled to the dependant tax exemption?
Which legal costs are tax deductible?
How can you be certain that "maintenance" payments are tax deductible?
What can you do to prevent making child support from being non-deductible?
Schedule A Consultation with an Experienced Financial Advisor
We hope this article has been both helpful and informative. However, if you still feel like you need more guidance, we’re here to help. Here at Fourth Avenue Financial, our first priority is your overall financial success, no matter what life events come your way. We want to help you develop, implement, and monitor a strategy designed to address your individual situation to ensure all your investments are setting you up for a path of financial success. If you are ready to start planning for your financial future, we are here to help. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online: https://calendly.com/fourthavenuefinancial/introductory-zoom.
Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.