Psychiatrists rank divorce as the second most stressful life event behind the loss of a loved one and its effects ripple through the entire family. Despite the often-mind-numbing emotions, it is also a time when you have to think about dividing your assets and identifying your options. This would be a challenge at any time but when things are coming at lightning speed having a team of experienced divorce professionals to explain important legal and financial consequences in your case makes dealing with the pivotal decisions much more manageable. The following are just three (3) key areas you should consider when trying to manage the financial impact of divorce on your life..
Psychiatrists rank divorce as the second most stressful life event behind the loss of a loved one and its effects ripple through the entire family. Despite the often-mind-numbing emotions, it is also a time when you have to think about dividing your assets and identifying your options. This would be a challenge at any time but when things are coming at lightning speed having a team of experienced divorce professionals to explain important legal and financial consequences in your case makes dealing with the pivotal decisions much more manageable. The following are just three (3) key areas you should consider when trying to manage the financial impact of divorce on your life.
According to the IRS Publication 504, if your divorce is final before the end of the calendar year, even on December 31, the IRS considers you to be single for the entire year and if you and your spouse have been filing joint returns this could be a major monetary issue when you file for divorce.
You should also consider your future liabilities when it comes to your income. If you have dividends, or sell stock, or withdraw funds from your retirement, this could adversely affect your tax liability for the following tax year. Consider meeting with an accountant or other tax preparer so you won’t be surprised about your tax liability once the divorce is finalized and any impact from the divorce is minimized.
It may come as a surprise but not all retirement accounts are the same. Some retirement accounts offer a set payment to you each month upon retirement. The longer you work, the larger your monthly payment will be from the pension plan. Other retirement plans are referred to as contribution plans and include IRAs, ESOP and 401(k) accounts, to name a few. These accounts allow you to withdraw funds upon retirement age (within preset limits), but the balances of these accounts fluctuate with the market based on the types of investments you have. Any funds added to the IRAs or 401(k) accounts during the marriage, and any pension benefits that accumulated over the years of the marriage, are all considered marital and subject to division in a divorce.
In reaching a settlement, it is common for the parties to offset debts owed and cash from accounts so that less money changes hands at the end of the day when dividing assets. Reaching a settlement is great; however, you should consider what accounts offsets are being made from. There are tax consequences and penalties for taking out IRA or 401(k) funds early, and these consequences should be considered when making any sort of trade-off for funds that are not taxed like equity from real estate, or funds from the division of a bank account.
The Marital Residence and Real Estate
Marital real estate in a divorce can be sold or awarded to one of the spouses. When it is awarded to a spouse, that spouse has to compensate the other spouse for their portion of the equity based upon a mutually agreed fair market value. Many times, this requires the first spouse to refinance the mortgage, at whatever the current interest rate, to pay the other spouse their equity. Additionally, being awarded this real estate property also usually means one spouse will be solely responsible for the mortgage, real estate taxes, homeowner’s insurance, utilities, repairs, and everything else that comes with the house.
This can lead to a substantial change in finances after the divorce with more debt and more bills. This can place a serious strain on finances, especially if the other spouse is paying additional support and they lose their job or have a material change in circumstances, the already delicate balance can shift badly. You should always think twice about whether you want to keep the marital residence or other marital real estate property, as it could cause financial issues later if you have not adequately analyzed and determined the affordability of the property and your usual living expenses, along with any minor children’s expenses, in the future. Owning a home is a huge expense, and although you might be very attached to the marital residence, or want to keep it for the children, sometimes it is not financially worth it to keep the home when you could get cash instead that you can use to find something more affordable that you are able to manage.
These are just a few of the things to think about if you want to get ahead of the game and minimize any financial impacts that a divorce might have on your life. Be sure to talk to an experienced family law or divorce attorney and call us about other ways to lessen the financial impact of divorce in your case.
The Geni Manning Real Estate Group has number of key professionals that we can refer our clients to including: divorce attorneys including some specializing in high net worth divorces, tax consultants, CPAs and accountants, lenders specializing in divorce situations. Any questions just give us a call at 469-556-1185 or RealEstate@GeniManning.com.
If you are thinking of, or in the middle of a divorce, we want you to know you're not alone and we’re here to help. If you would like to discuss how we can assist you with your future plans, please give me a call at 469-556-1185.
Disclaimer: The information provided in this website and our blogs is not intended for legal, financial or mental health advice but is for general informational purposes only. While we endeavor to provide the latest information on a particular subject, future changes to the source Information is beyond our control.