Tax & Financial Impacts of Divorce: 10 Mistakes to Avoid
Divorce is something no one hopes will happen to them when they get married. Unfortunately, almost half of all marriages end in divorce. Since few people have pre-nuptial agreements, most divorces involve often bitter tangles over children, money, and assets. When it comes to the tax and financial implications of divorce, often your divorce attorney is not the only one you should rely on for advice. I have found ten very common mistakes that people make in the divorce process. A tax or financial pro can help you avoid them. 1. Don't let emotions guide you in determining the divorce settlement. Divorce is about a lot of things, but is caused mainly by emotional issues or financial problems in the marriage. You may love or hate your soon-to-be ex, but you cannot rely on your "gut" feelings that they will do right by you or the children. You must make the settlement using reason and planning for the unexpected. He or she may want to pay a large alimony and a small amount in child support by telling you they want to see you are "taken care of." That may result in less tax for them, a lot more taxes for you and destitute children should you die before they reach 18. Financial planning is critical. 2. Get a good family law attorney, but don't forget to hire a financial professional to assist in evaluating assets and financial strategies. It may cost extra fees, but it will result in a far better settlement for you in most cases. A Certified Public Accountant (CPA), Certified Financial Planner (CFP), or an Enrolled Agent (EA) can be of invaluable help. What is the house really worth? If a business is involved, what are the consequences of its disposition or the true value of it in the divorce settlement? Your spouse might tell you their business is losing money or has no assets; you need to know the truth! 3. Getting the house in the divorce is not always a good deal. Women often want the house in the divorce because they are raising a family in it or have decorated it and are emotionally attached to the property. If it has a mortgage attached to it, think long and hard about the house. It might be better to sell it and split the equity. If you aren't working and are raising kids, do you really want a big mortgage payment? 4. Failing to fight for the most child support you can get! Large alimony and low child support payments are generally not a good deal to the spouse getting the payments. Alimony is tax deductible to the party paying but taxable to the party who receives it. A large payment is a large tax deduction for one party and a big tax burden to the person getting it. Child support is tax free to the recipient and not deductible to the payer. Also, alimony may terminate upon marriage or death, but Child Support continues until the child reaches 18. 5. Failure to specify who can claim the kids on the tax return. The divorce should specify who will be entitled to claim the children. Also, Form 8332 Release of Claim may need to be filed with IRS in some circumstances. 6. Lack of planning with regard to life insurance. Life insurance should be reviewed in the event of divorce. You may want to take your ex off of your policy as beneficiary, but do you really want to make your children beneficiaries? Unless they are over 18, this can be a big mistake as the funds may go to a trustee until the kids reach majority. Consult with your attorney on how to style your life insurance to best provide for the kids. If you are the person getting alimony or child support, it is a very good idea to carry a life insurance policy on your ex in the event of death. Otherwise the money stops coming and you may end up homeless. 7. No income modeling done in the calculation of alimony. Your spouse may be a corporate executive and have great future earning potential. He or she may have stock options. An income model should be made to determine the potential they have and how it can affect your claim in the divorce. 8. Failure to secure a Qualified Domestic Relations Order (Quadro) in the event of a 401K or other tax impacted investment that is divided in the divorce. If you don't do the right thing, huge tax penalties can be imposed on taking money out of IRAs, 401Ks, or Annuities. A good family law attorney can help with this but your Uncle Joe who handles bad check defense may not be the guy you want to do your divorce. He or she may not be familiar with a Quadro. 9. Failure to have assets professionally appraised. If you have rent houses, oil and gas investments, etc. Get a professional valuation or you may be cheated in the divorce settlement. The spouse who handles these investments may not be honest with you on the values. Just because he or she loves the kids or was married to you for thirty years does not mean you can trust them. 10. Lack of faith in yourself and your future. Divorce is bad but it is not the end of the world! You may have some tough times but your life will go on and it may be a blessed life. You don't know what tomorrow brings. It may bring love and happiness. You must have faith in yourself so that you can take care of the kids and be successful in whatever you choose to do. Money is not everything, but if you don't have faith in God and yourself, you won't be financially successful. Well that is my list and it is my prayer that it has helped you in some way. Be strong and be forceful. Don't get walked on! J.R. Coleman, E.A., A.T.A.
www.exirsman.com James Robert Coleman, E.A., A.T.A.
Enrolled Agent & Accredited Tax Advisor
Member: National Association of Enrolled Agents
Former IRS Revenue Officer, GS-11
http://www.exirsman.com
Related News
|
 |
|
|
RELATED ARTICLES
Divorce, The Hardest Thing You Have To Do
Knowing What To Do In Divorce
Should I Get Divorced? Or Not?
No one besides you can determine whether or not a divorce is right for you! But, there are some general questions which pretty much apply to everybody. Thinking about the following issues may help you answer this question for yourself!
How Can Collaborative Law Be Beneficial In Your Texas Divorce?
Collaborative law is based on the realization that the commitment by the parties in a family is that it is in their best interest to avoid going to trial.
How Thinking About An Uncontested Divorce Figures Into Your Decision About Divorce
An uncontested divorce is the most common type of divorce. An uncontested divorce is a divorce that occurs when there are no disagreements between spouses over divorce related issues like custody, finances, living arrangements, spousal support, child support, etc. An uncontested divorce can be an easy way for people to get divorced without the hassles of a legal struggle and undue wear and tear on emotions.
Divorce and Children: Things To Consider When Youre Staying Married Only For Your Children
All children are different and respond differently to divorce. Depending on the characteristics of the children - age, emotional maturity, happiness, resiliency to trauma - the easier or more difficult it will be for children to weather a divorce.
Avoid Lawyers! Do-It-Yourself Divorce Saved Me Tons of Money!
Let me preface this by saying right up front - this is NOT for everyone. The key is that my situation was friendly enough to still communicate with each other after we split. My ex-wife and I agreed that our kids were certainly worth that! And we still have to deal with one another until they are through college. This is offered as a life experience only and not intended as legal advice. As such, this may not apply to you.
The Heart Moves On: Using Ceremony to Mark the End of a Relationship
Divorce or the end of a long-term relationship is a particularly difficult experience because it makes you deal with two different sets of issues.
A Time of Grief and Healing After Separation and Divorce
I thought I would never feel the light of life again when I realized that my marriage was going to end. In fact I went through a painful year of not knowing if it would end. I had several months of suspecting that she was having an affair. There was weeks that I didn't see her because she was staying out all night. I tried to do everything that I thought would help to mend the situation. I tried to get her to go to counseling, talk to the pastor at church, but the more I tried the worse my situation became. She resented me for every thing I tried to do.
Cheating Husbands - Meeting Needs?
Husbands cheat on their wives for many reasons. They could be bored with their lifestyle and feel that they need to do something exciting or they could be having a midlife crisis. The latter is very common as many husbands cheat on their wives when they seem to reach 40 for some reason.
Divorce -Is It Lawful?
The question of divorce and its lawfulness is of long standing. The law-makers of our day have tried to answer the question. In many countries of the world it is said, "Yes, divorce is lawful." Yet after the government has granted permission and many have obtained divorce by suits at law, the question still remains, Is divorce lawful?
Stop Divorce: Should You Try To Stop Your Divorce If Youre Just Thinking About Getting A Divorce?
Thinking about getting a divorce doesn't necessarily mean that you should try to stop your divorce. Conversely, it could be wise to try to s top your divorce, only you know whether you should. Just because you're thinking about getting a divorce, doesn't necessarily mean that you should try to stop your divorce, although its logical to automatically assume so.
Joint Bank Accounts and Divorce
Here are some useful tips on joint bank accounts and divorce. If you've recently been through a divorce - or are contemplating one - you may want to look closely at issues involving joint bank accounts.
Why Men Wont Commit To Marriage
A common reason why men wont commit could be due to their past. Men wont commit if they have witnessed their parents in the past arguing or rowing. Their childhood memories could be that of an unhappy one. They may not have been brought up in a happy family atmosphere. If their parents didn't get on together then they would have seen this situation as normal family life. Men will be much more cautious of committing themselves to a stable relationship if they have been brought up in an unhappy environment.
Divorce: How To Survive A Divorce And Move On With Your Life
One out of every two marriages in America is failing.
There Is Life After Divorce
A married woman becomes a single woman for one of two reasons: death or divorce. The former is an honourable state, the latter is not.
5 Things To Do Before You Even Think About Getting A Divorce
There are many steps to take to protect yourself in a divorce. This article will get you started. Your best bet is to talk to a lawyer before you do anything.
Too Many Divorces
My oldest boy asked me something the other day about all the news regarding the high divorce rate. I told him there aren't too many divorces, there's too many marriages. Most people get married without really knowing who they are marrying or just how big of a commitment they are making. Heck, most people get married before they even know themselves very well. When the reality of it all hits them, they are either stuck in a bad marriage for life, or they get a divorce. Education is the solution.
Credit and Divorce
Mary and Bill recently divorced. Their divorce decree stated that Bill would pay the balances on their three joint credit card accounts. Months later, after Bill neglected to pay off these accounts, all three creditors contacted Mary for payment. She referred them to the divorce decree, insisting that she was not responsible for the accounts. The creditors correctly stated that they were not parties to the decree and that Mary was still legally responsible for paying off the couple's joint accounts. Mary later found out that the late payments appeared on her credit report.
10 Ways to Keep Divorce Lawyers From Ruining Your Life
Everyone has heard the story (from friends, co-workers, and family members) of the divorce from hell; the one that grinds on for years, costs untold thousands of dollars, and frustratingly plods its way through the court system. It costs people not only their marriage, but often their children, their savings, and their emotional well-being, as well. Unfortunately, many people going through a divorce end up hating their lawyer, and more commonly, hating their spouse's lawyer. It doesn't have to be that way. You can get a divorce without letting lawyers ruin your life. Using the ten tips outlined below will make a huge difference in the way your divorce progresses. It's hard to behave rationally as you navigate this painful process, but the vast majority of people find the strength to get through a divorce without losing control of their emotions or finances. You can control the process and guide the matter to a successful solution, leaving your financial situation intact and allowing you to meet your needs now and in the future.
The Impact of Divorce on Families
As a licensed mental health professional, I work with many individuals, couples, and families who are affected by divorce. I see the devastating effects that breakups can have and am dedicated to helping people develop the skills to cope with experiences like divorce.
|
