Avoiding the Common Mistakes When Dividing Finances after a Divorce
In the aftermath of a marital breakup, determining how assets and debts will be allocated can be the most challenging task. Without competent legal guidance, there are a number of common miscues that many people make.
Failing to Look at the Tax Consequences of Dividing Property
On the surface, it may appear that you and your ex came out about even, but what about the potential tax ramifications? If one party gets to keep the house and the other party gets retirement plan assets, there can be a significant difference in the value when you actually see the money. Because most retirement plan assets are pre-tax contributions, there will typically be tax consequences upon the withdrawal of funds. However, with the sale of a house, provided the capital gains fall under the allowable amount, there may be no tax event.
Keeping Some Accounts in Common with Your Ex
There’s no good reason to keep any joint accounts with your ex. You’ll want to close all joint bank accounts, credit cards, and investment accounts, as well as any debts/loans, including your mortgage. Don’t forget to change the beneficiary on life insurance policies, annuities, retirement accounts and investment portfolios, unless you want the proceeds to go to your ex in the event of your death.
Making Financial Decisions Based on Emotional Attachments
In general, property is just property and can be replaced. The minute you start attaching emotional value to items of personal or real property, you put yourself in a position to be exploited.
Failing to Take the Time to Identify and Locate All Debts and Assets
A recent study found that nearly 20% of recently divorced people admitted to hiding a bank account or other asset from a spouse. Don’t let your desire to be done with the process let you get the short end of the stick.