Every divorcing couple’s situation is different, and it may come as no surprise that divorce can often be a costly process. That is why it is imperative to keep your finances in order and always consult with an attorney before making any decisions on what to do with marital assets when you are preparing for divorce.
The following are a few key points to keep in mind while going through the divorce process:
1. Speak to an attorney first and foremost regarding any initial financial decisions. Transferring assets of any nature before you file for divorce is discouraged because it looks like you are trying to hide assets. It is important to understand that during the course of the divorce you are required to provide full financial disclosure of any asset to which you have an interest. This is the case for any asset that is held in your name individually or jointly, however, it also applies for any asset that is held in the name of a third party for your benefit. Additionally, in every divorce action, an automatic restraining order becomes effective against the plaintiff upon the filing of a complaint, and against the defendant upon service of the summons and complaint on him/her. To paraphrase, the order prevents either party from selling, transferring, encumbering, concealing, assigning, removing or disposing of any property belonging to either party, except in limited circumstances.
2. It’s not always in your best interest to retain the marital home. The home holds a lot of memories and if children are involved it also may seem like the right thing to do. However, in practical terms, the home must remain affordable to you after the divorce on just your income. If neither party can afford the cost and expense of maintaining the home, it should be sold.
3. Be sure to obtain advice from an attorney before deciding the terms of support issues in your case and determining the division of assets and retirement funds. It is important to consider the various tax consequences in the context of divorce in order to enter into the most beneficial support arrangement and determine how to prudently divide assets. Child support is not taxable income to the recipient parent and it is not deductible for the payor spouse. In contrast, alimony is included as taxable income to the recipient spouse and is tax deductible for the payor spouse. Parties and counsel should also bear in mind the difference between liquid assets such as bank accounts, mutual funds, etc. and pre-tax assets including IRAs, 401(k)s and other retirement accounts (excluding Roth IRAs). By way of example, it would not be an equal division for one party to receive $100,000 in cash from a checking account and the other party receives $100,000 in pre-tax retirement assets. Although each party is receiving $100,000, the party receiving pre-tax retirement funds is actually receiving less than $100,000 because said funds have not yet been taxed.
4. If you did not manage the finances during the marriage, hiring a financial planner after your divorce may be beneficial.
Going through a divorce is emotionally draining, so preventing it from being financially draining will hopefully provide some peace of mind. Always speak with a professional before making any decisions that could impact the rest of your life.