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Avoiding serious financial errors during divorce

On Behalf of | Sep 25, 2014 | High Asset Divorce |

Financial concerns are an indisputable part of ending a marriage that cannot be overlooked if one is to protect their future. Several money issues are often ignored or misunderstood by people in Florida, leading to a potentially weaker financial standing post-divorce than might have been necessary. Knowledge of errors to avoid might place a divorcing spouse in a better position when negotiating a settlement.

One potentially serious mistake is to seek illiquid assets when one has a need for cash flow. Bonds, stocks and mutual funds are generally easy to liquidate, providing quick cash for living expenses. Assets such as property or retirement benefits are less easy to turn into cash, which might be all right for people with sufficient income or savings but are not ideal for everyone. Another mistake that could have serious consequences is a failure to refinance mortgages, pay off credit cards and otherwise address joint liabilities.

Many assets have different pre- and post-tax values. Not considering the true value after taxes might lead to unpleasant surprises. Some assets like a Roth 401(k) or Roth IRA will not lose value because growth is exempt from taxes. Withdrawals from a non-Roth account can be taxed as income and might require a 10 percent penalty. This might be prevented by distributing funds within 12 months of a divorce. A qualified domestic relations order could allow a one-time transfer of retirement benefits free from taxes. Also to be considered are contributions to charities and other tax assets that decrease taxes owed.

Even with some basic understanding of pitfalls to avoid, it can be difficult for some divorcing spouses to agree on a settlement. If negotiations fail, an attorney could represent a spouse’s interest in court and explain why he or she requires the desired assets.

Source: Market Watch, “Divorce? The 6 worst money mistakes“, Leslie Thompson, September 23, 2014


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