Thursday, December 21, 2017

5 Financial Facts to Know Concerning Divorce

It may seem crass or calculating to focus on the financial aspects when you are getting a divorce. However, it is necessary because money matters become complicated when two people are married. 

As a first in the process of untangling the financial issues, you should immediately begin to monitor expenses and gather financial documents like account statements, deeds, titles and tax returns. 

Your divorce lawyer and the judge in the divorce proceedings will need this information.

Your Financial Situation Will Change

Going into the divorce process, you are not likely to anticipate all of the financial changes that will occur. You may have to plan on paying the full cost of rent, health insurance, utilities and a host of other expenses that you now share or leave to your spouse. 

The best course is to avoid making big changes in your financial life that are not immediately necessary. Keep a tight rein on expenses, and try to accumulate a cash reserve.

Tax Implications

When property is divided up in a divorce, there are generally no tax implications. Alimony is another matter. The spouse who pays alimony can deduct it on his or her taxes. For the recipient, alimony is taxable income. 

If you are awarded alimony payments, you must report them each quarter by filing an estimated tax return with the IRS. A divorce attorney from a firm like Kelm & Reuter, P.A. might be able to help you with this as well.

Retirement Account Issues

In some cases, the only thing you need to do with IRAs, 401(k)s and other retirement accounts is change the beneficiary. 

However, a judge can order funds to be shifted to balance retirement savings between the spouses. In this situation, you should retain a qualified domestic relations officer to implement the court’s instructions.

The Financial Facts of Children and Divorce

Ultimately, the court decides issues of child custody and child support. However, you will strengthen your position on these issues if you provide complete records of current expenses related to caring for children. 

When assets like 529 college savings plans are an issue, you, your spouse and the court must decide who will administer fund accounts. It will also be necessary to determine which parent is entitled to claim children as dependents for tax purposes.

Estate Issues

Change in estate arrangements are necessary when a couple splits up. You should make a new will, and you may need to change the trustees and beneficiaries of life insurance policies and trusts. 

In addition, you should create a new living will and designate someone other than your spouse to hold your power of attorney.

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