10 Divorce Financial Mistakes
1. Assumed Fair Division of Property
Many people are attached to their home and cannot think of living in another house. Generally, the house comes with a cost, high mortgage, insurance, taxes, and repairs. These additional expenses can devastate a person’s finances. Although, the value of the house may be equal to the value of other assets, they are apples and oranges. A 50/50 division of assets appears to be equal but it may not be equitable.
2. Qualified Domestic Relations Order (QDRO)
The QDRO is one of the most important areas of divorce law. You may actually elect to commence your former spouse’s pension even if they have not yet retired. The ages of each spouse are an important factor in this regard. You should find out how often the plan is valued by the administrator and when the company makes contributions to be certain you get your fair share.
3. Tax Laws
Tax laws are actually favorable towards divorcing couples. For example, A premature distribution from a qualified plan prior to age 59 ½ can be facilitated without the 10% federal penalty.
4. Health insurance coverage
COBRA covers you as a former spouse for 36 months after the date of divorce. However if your former spouse pays premiums, you may be required to report as income on your taxes. You should seek individual coverage as soon as possible so you can take cost into account.
5. Failure to understand tax consequences
on different assets and how it relates to your settlement. Your home, investments, annuities and retirement accounts all have different tax consequences. It’s best for each spouse to seek out their own tax advice.
6. Liability for unsecured debt
In most cases, if the debt was incurred during the marriage; it’s a shared responsibility no matter how it’s titled. The best practice is to pay off all debts if possible before divorce becomes final.
7. Not planning for the premature death of former spouse
It would be best to insure income stream if you are going to be dependent on income from a former spouse for an extended period of time such as child support or spousal maintenance
8. Failure to organize personal affairs immediately after divorce
Its best to review your named beneficiaries on your 401(k), IRA plans and life insurance. If the couple has children a trust can be established and a custodian of choice can be named to handle accounts in the benefit of the minor children.
9. Underestimating your expenses
Consider the cost of your future living expenses taking inflation into account. Take the time to write down your expenses and develop a budget. You may find that you might not be able to maintain the same lifestyle.
10. Separate Property vs. Community Property
Separate Property is property owned or claimed by the spouse before marriage, property acquired by the spouse during marriage, by gift, inheritance and, recovery for personal injuries sustained by the spouse during marriage. Community property consists of all property, other than separate property acquired by either spouse during marriage. Property possessed by either spouse during the dissolution of the marriage is presumed to be community property, unless the spouse can prove that it is their separate property by clear and convincing evidence.