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

---

Credit and Divorce

Mary and Bill recently divorced. Their divorce decree stated that... Read More

Divorce--How to Beat the System

Of course you want to get your Judgment--that's the goal... Read More

Divorce -Is It Lawful?

The question of divorce and its lawfulness is of long... Read More

Rebuilding Your Life from the Ashes

One peculiar feature of a stepfamily is that they are... Read More

7 Ways to Rediscover Your True Passion after Divorce

Going through a divorce is a very challenging time in... Read More

10 Ways to Keep Divorce Lawyers From Ruining Your Life

Everyone has heard the story (from friends, co-workers, and family... Read More

Divorce Makes Us Stronger

My friends call me the "Divorce Poster Child".At the age... Read More

Does Your Sexless Marriage Have You Thinking About Divorce?

If you are in a sexless marriage and are unhappy... Read More

Alienation of Affection - Interference with marriage can cost big bucks in North Carolina

Non-lawyers are often surprised to learn that a spouse can... Read More

Tax & Financial Impacts of Divorce: 10 Mistakes to Avoid

Divorce is something no one hopes will happen to them... Read More

Spousal Emotional Abuse During Divorce--What You Can Do

Is your spouse violent, abusive, harassing? In cases of harassment... Read More

Two Hearts Are Now One

It is fitting that I should write this story on... Read More

Divorce and Children: Things To Consider When Youre Staying Married Only For Your Children

All children are different and respond differently to divorce. Depending... Read More

What Are You Waiting For?

So, you've decided that you're no longer "a couple", but... Read More

Why Standard Visitation Should NOT Be Standard

When a nuclear family separates, it usually separates into a... Read More

Deciding on Divorce: How to Know You are Making the Right Choice

It's a well known fact that in this day and... Read More

Top 5 To Dos Before Saying ?I Do?

1. DO allow yourself enough time to make one of... Read More

3 Major Divorce Parenting Mistakes And Learn How To Avoid Them

What 3 major divorce parenting mistakes that surely lead to... Read More

How To Identify What The Question Should I Get a Divorce? Means To You

Deciding about whether you should get a divorce or not... Read More

Dating Tips for Divorced and Widowed Moms

Dating is tough for just about everybody, but it's even... Read More

Divorce, The Hardest Thing You Have To Do

Knowing What To Do In DivorceKnowing what to do when... Read More

Divorce--Overcoming the Obstacles to Agreement: Ten Steps

You're going to want to be working on your divorce... Read More

Divorce and Separation - A Child?s Perspective

It is always the children that suffer the most when... Read More

Is Your Marriage Problem Severe Enough To Warrant Getting A Divorce?

Having a marriage problem can be agonizing especially if you're... Read More

Divorce and the Stock Market

The most recent statistics show that about 50% of all... Read More

Does Living In A Loveless Marriage Necessarily Mean That You Should Get A Divorce?

Being in a loveless marriage is a frustrating predicament, but... Read More

Divorce: Secrets To Coping With A Divorce Announcement

During a wedding ceremony, when people are joined together in... Read More

Divorce--Getting Legal Help Without Paying Exorbitant Attorneys Fees

Ignorance is the most common trap in the business of... Read More

Effects of Divorce on Children

When a couple decides their marriage is over, a tremendous... Read More

Divorce--How the Legal System Works Against You

If there were no legal system, no lawyers and no... Read More

There Is Life After Divorce

A married woman becomes a single woman for one of... Read More

How to Select a Divorce Lawyer

Selecting a divorce lawyer to handle your family law case... Read More

Divorce Articles: How To Get The Most From A Divorce Article

There are many types of divorce articles available on the... Read More