Many life-changing decisions surface during a divorce, and sometimes emotions can get in the way of thoroughly thinking through decisions.
Here are a few tips to consider when going through a divorce:
The marital home can hold many memories, and there are often emotional ties to the residence from the wife or husband. However, before you decide to take on the marital home, it is crucial to analyze your future financial income to determine if you can afford it. If you are awarded the home, you could be faced with “buying out” your spouse’s portion of the equity. You may also be required to refinance the property to remove your spouse’s name and prevent future issues. It is important to talk to your bank to understand financing options before you negotiate. For many divorcing couples, it is best to sell the shared property before the divorce is finalized so that you and your spouse can pay off the mortgage, split the proceeds and use the capital gain exclusion as a married couple.
Splitting assets down the middle sounds relatively fair and easy, but it is not that simple. It is important to identify the pre-tax assets versus the after-tax assets, or you could get stuck paying more taxes later. Most qualified retirement assets are funded with pretax dollars, so taxes have not been paid yet. Cash accounts, such as money market or checking accounts, are funded with after-tax dollars. Stock accounts incur capital gain taxes once the stock is sold. It is also important to understand when to take distributions on retirement assets, manage these accounts, and the penalties associated if the distributions are taken too early. For many divorcing couples, it is advantageous to work with a financial advisor to understand the advantages and disadvantages of asset division.
Did you know that if you have been married for 10 years or more, you are eligible for a portion of your ex’s social security benefit? And no, he or she cannot deny you your portion. For spouses who left the workforce or never entered for whatever reason, you may have little to no credit history with social security, which could mean having very little to no social security benefits. It is important to work with a professional to understand your options when electing your ex-spouse’s social security benefit.
Credit Card Reward Points
Would you want your ex-spouse to use all the miles earned during the marriage to take a vacation once the divorce is finalized? These reward points are most often straightforward to overlook, but these have value and should be considered marital property. If you have enough points to consider splitting, it is important to work with your attorney or a financial professional to determine the best solution to divide points so that you can take that vacation once your divorce is finalized.
There are many more important aspects to consider when going through a divorce. Working with a Certified Divorce Financial Analyst® or a CERTIFIED FINANCIAL PLANNER™ can help you reach the best possible resolutions and settlements in your case. At Bridgeworth, we work with clients and collaborate with their attorneys to arrive at a fully understood settlement by all parties involved.
Susan R. Copeland, CFP®, CDFA® is a Certified Divorce Financial Analyst®. This credential is for professionals specializing in the financial aspects of divorce and involves an intensive training program covering 11 different domains related to divorce planning.
This content does not constitute legal, tax, accounting, financial, or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial, or investment professionals based on your specific circumstances. We do not make any warranties regarding the accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.