Five Key Financial Don'ts to Avoid in a Divorce Case
In talking divorce, a considerable amount of attention typically is paid to what you should do in regard to marriage dissolution proceeds. Oftentimes, little attention is paid to the proverbial don’ts of divorcing. This particularly is the case when it comes to the financial “do not dos” of ending a marriage. There are five key financial don’ts to avoid in a divorce case:
• Don’t overlook health insurance
• Don’t necessarily keep the house
• Don’t ignore tax consequences of property and debt division
• Don’t overlook technicalities associated with splitting retirement accounts
• Don’t spend lavishly during divorce case
Don’t Overlook Health Insurance
Oftentimes, one spouse maintains a health insurance policy that covers not only that individual, but the spouse and children (typically through an employer). Close attention must be paid to ensure that both spouses and the children appropriately are covered with suitable health insurance and after divorce proceedings.
In some cases, COBRA provisions accessible through the existing health insurance coverage my be the best course. In other situations, consideration of what might be available via the Affordable Care Act health insurance exchange may be a suitable alternative.
Don’t Necessarily Keep the House
Your home likely has a considerable amount of sentimental value. With that said, sentiment alone typically is not a sufficiently sufficient reason to keep a marital residence when financial issues at are play.
During a divorce, the decision to set aside the marital home as the property of one or another of the spouses needs to be subjected to a very dispassionate, objective financial evaluation. Parting spouses need to frankly examine whether keeping the house rather than selling it and distributing the proceeds makes sound financial sense.
Don’t Ignore Tax Consequences of Property and Debt Division
Time and again in divorce cases, the parting spouses fail to focus on potential tax consequences that might exist relative to decisions made regarding the division of assets and debts. The reality is that one or both spouses can be hit with some less than pleasant tax consequences if taxation is not part of the overall consideration when it comes to diving up property and debt.
In addition to retaining experienced legal counsel for a divorce, an individual involved in a marriage dissolution case is wise to consult with a capable tax advisor regarding a proposed division of assets and debts. Special attention needs to be paid to the implications of the fairly recent Tax Cuts and Jobs Act of 2017, commonly referred to as the tax reform legislation or law.
Don’t Overlook Technicalities Associated with Splitting Retirement Accounts
Retirement accounts are deemed assets of a marriage subject to division during a divorce. Because of the nature of retirement accounts, cashing them out because of a divorce nearly always would be an ill-advised course of action.
When addressing retirement accounts as part of diving up assets during divorce proceedings, spouses need to appreciate the technical nature of this process. These technicalities, among others, typically underscore the benefits derived from hiring an experienced, qualified divorce lawyer.
For example, special orders from the court may be necessary in order to split retirements account in a divorce without negative financial consequences. A typical court decree used in this regard is known as a qualified domestic relations order or QDRO.
Don’t Spend Lavishly During a Divorce Case
With what fairly can be called “alarming regularity,” one spouse or another – or even both – embark on a course of spending lavishly during divorce proceedings. There can be a variety of reasons why lavish spending occurs while a divorce case is spending.
In some cases, a spouse wants to “get back at” the other party by spending heavily. In other situations, a divorcing person elects to spend a considerable amount of money as something of an emotional salve.
The bottom line is that spending lavishly during a divorce case is nearly always ill-advised. While a divorce case is ongoing, spouses need to take care to be prudent in the manner in which they spend.
In the final analysis, when it comes to avoiding the financial don’ts of a divorce, a person is wise to rely upon professional advice. This includes professional guidance not only from a divorce lawyer, but from accounting and tax professionals as well.