Getting divorced can be incredibly costly if you aren’t aware of some very important pieces that can get overlooked. These are some of the most costly mistakes made in a divorce and how you can avoid them. With a little bit of planning, this process can be mostly painless.
-Consider Tax Implications
Because child support and alimony both provide financial support, they need to be considered when dealing with taxes. Additionally, whoever is claiming which children will need to be addressed. Essentially, if you are paying child support you are unable to claim it on your taxes, and your ex receives tax-free income. However, if you are providing spousal support, you can write that off and your ex will need to pay taxes on that income. It’s recommended to have both party’s assets and salary accurately detailed in the divorce decree. You should also speak with an accountant to get further information about what impact claiming children or providing support may have on your taxes.
Tax implications don’t start and end with children. Real estate is another piece that needs to be accounted for. When a couple owns a house together, they will deduct the interest they pay on a mortgage on their tax returns. Whoever keeps the house and carries the mortgage along with it is able to retain that deduction, along with real estate taxes. If the home is sold, both parties lose this deduction. It’s important to know the value of property-related tax deductions and how they will affect you moving forward, so it’s recommended to consult with a CPA to discuss this. Include the value of these deductions when dealing with divorce negotiations.
-Be Upfront About Assets
When going through a divorce, it may seem tempting to make it look like you have less money than you really do. Whether it’s to keep more of your own money or an attempt at hurting your spouse, it’s not only unethical, it’s illegal. If the judge presiding over the divorce learns about this, there will be serious consequences. It’s also important to make sure your spouse is just as upfront about disclosing their assets because if they are able to get away with hiding them, you will lose out on assets and money to which you’re legally entitled. So it’s always easier and safer to just play by the rules. Report all salaries, assets, and income as the law requires. Honesty goes a long way to making this a smooth process.
When going through your assets, pay close attention to their values. You may have gotten a pretty good deal on that house, but splitting a mortgage between two people is much easier than doing it on your own. If that mortgage is too high to handle with your sole salary, it creates too much of a financial burden for you to take on. We recommend speaking with a valuation expert to take a look at your assets and financial situation so you have a better understanding of where you’re at moving forward. If need be, you may need to rent or sell the home to cover the necessary costs as you relocate to somewhere more in your income range.
-Update Your Beneficiaries
Possibly the most important step is the most often forgotten one. In our busy lives, it can get difficult to keep track of a lot of the important paperwork we fill out. Especially when it’s provided by your work, it typically gets filled out early on in your time with them and then it’s filed away, only pulled out when absolutely necessary. But when you list a beneficiary on a will, retirement account, or insurance policy, it’s imperative you keep that information up to date. Even if you were to remarry, it does not automatically change that over. Your ex would still be entitled to any insurance or retirement account proceeds if they are still listed as the beneficiary. We recommend you thoroughly examine your financial portfolio and insurance plans to ensure the beneficiary information is updated. Additionally, it is required by law to remove your spouse from any employer-based health insurance within 30 days of the divorce being finalized.
Divorce is already very hectic and often emotional. Though with proper planning you can avoid some of the costly pitfalls we have seen others encounter. It’s incredibly valuable to look at the long game and understand the long-term effects of your divorce, both financially and emotionally. Discuss the benefits and drawbacks with your spouse and attorney. It’s entirely possible to make this a mutually beneficial situation with open communication. If you are considering divorce or need some consultation about the ramifications of divorce, give us a call today. At the Law Office of Tobie Kuykendall, we want to help you start the next phase of your life on the right foot.