Divorce And Finances
A recent online article on common financial issues of divorce may interest Ohio residents. While it may be wise to plan for divorce while planning to marry, few people have that foresight, and as a result, they encounter financial problems when they decide to split. Remembering a few precautionary steps may ease the process, however.
For example, having adequate cash on hand or access to assets easily converted to cash to cover expenses during the divorce is often important. Being aware of the tax implications of assets is important as well. During a divorce, a Roth IRA is more valuable than a traditional 401 account because it is funded by after-tax contributions, and future distributions are tax-free, unlike a traditional 401k.
Taking stock of joint liabilities and settling them prior to divorce is important. Mortgages should be refinanced, and outstanding jointly held debts and tax liabilities paid off or assigned to one party. Furthermore, joint credit cards should be canceled, and obtaining a credit check to verify a clear credit status and avoid an unexpected debt may be wise.
Reviewing past tax records to assign past tax or charitable carry-overs, capital loss carry-forwards or net-operating losses may help prevent errors or confusion when doing taxes post-divorce. In addition, retirement assets may be a large part of marital wealth, and care must be taken when dividing them to avoid unnecessary taxation. Retirement account distributions should be entered in the divorce decree as transfer incident to divorce to avoid taxation at withdrawal. Division of digital assets may have more sentimental than monetary value, but steps to ensure access to digital media should be taken as well.
Divorce can be a complicated and emotionally-laden process. Legal counsel experienced in family law, asset valuation and division, support and settlement strategies may make a substantial difference when negotiating post-divorce finances.
Source: MarketWatch, “Divorce? The 6 worst money mistakes“, September 23, 2014