Consider these four financial implications before finalizing your divorce.
One of the most contentious portions of a divorce proceeding is the division of assets. This portion of the divorce impacts each party’s finances not just during and immediately following the divorce, but well into the future. As such, it is important to logically consider the impact of the property division determination of the divorce before signing the final divorce settlement agreement.
Four specific considerations to take into account include:
- Accounting. First, account for all assets before the property division negotiations begin. Are retirement assets listed? What about any second properties, business interests, stocks and mutual funds? You must know the assets in order to develop a fair settlement agreement.
- Debts. A finalized divorce does not translate to forgiven debt. Creditors will hold both parties listed on a mortgage or car loan liable for the remaining amount on the loan. In many cases, this can mean both parties are liable for the full amount that remains on the loan. You cannot simply pay the creditor your share and have your name removed from the loan. Additional action is required to remove an individual from a loan or other financial obligation that lists both parties in order ot make this agreement a reality that the creditor will honor.
- Property. As noted in a previous piece, splitting real estate can be a difficult process. A prime example is the family home. It is not uncommon to have an emotional attachment to a family home. However, giving this asset to one party is not always the best financial decision. Carefully weigh both the benefits and risks of keeping or selling the property before making a final determination.
- Tax. The division of property can result in numerous tax implications. Although child support payments are not subject to taxation, the Internal Revenue Service (IRS) does apply taxes on alimony or spousal support payments. The rules for taxation of these payments are changing as a result of the recent Tax Cuts and Jobs Act (TCJA) that became law last year. Essentially, couples that finalize a divorce in 2018 will have their alimony payments taxed as income for the recipient. Couples that finalize the divorce after 2018 will tax the payment as income for the payor.
These are just a few of the more common financial considerations to take into account before finalizing a divorce. An attorney experienced in property division determinations can help to better ensure all factors are taken into consideration and reduce the risk of any surprises once the divorce is finalized.