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Filing for Divorce – Prepare Wisely to Mitigate the Financial Fallout

A Looming Divorce Rate

Yes, it is official! Almost 50% of the marriages in the U.S. end in divorce. And let us face it; almost every divorce is traumatic in one way or another.  The decision to file for divorce brings with it a whole list of unpleasant situations that have to be addressed during the course of the divorce and after. While there is an extensive list of physical and emotional implications caused by a divorce, one of the toughest of them is financial fallout.

Monumental Financial Decisions

Divorce affects many aspects besides financialObtaining a divorce can’t be half as tough as dealing with the inevitable financial set back. The moment the ‘bitter’ word enters the household, the spouses begin a downward spiral that daunts them to no end. An “amicable” divorce, is a more objective approach to mitigating any financial fallout arising out of a divorce. ‘Splitting finances’ is easier said than done. Financial fallout is prevalent when one spouse feels “wronged” and is determined to “make their spouse pay”.

Splitting of assets – On the surface, it may look easy when you have to split $10,000 worth of assets between a couple. In reality, it is far from that. Even though a bank account with $10,000 and a home with $10,000 worth of equity may have the same face value; their financial implications are not the same. The savings account is liquid, the house requires effort, time and expenses to sell. The rightful division of finances between the couple is subject to several legal considerations and seeking the help of a professional divorce attorney can help alleviate financial risk, to a large extent.

  • Child support and Alimony – The second financial implication comes in the form of taxes implied on alimony. Matthew Kremer, a San Diego based divorce attorney is quick to point out that “tax implications are one area that is often overlooked while addressing the spouse’s demand for continuous financial support.” While alimony is subject to tax deduction by both parties, child support paid is generally exempt from tax. Financial support imparted to handle the educational needs of the child / children is not governed by any standard agreement. It depends entirely on what the couple has negotiated. The expert guidance of an experienced lawyer will help in negotiating appropriately.
  • Post retirement support – Retirement agreement plans are generally written out by a Qualified Domestic Relations Order (QRDO). One crucial point that needs to be taken care of here, is the wording of the agreement. It should be written in such a way that future market risk is taken into account so that the agreement is fair and equal.

We understand that most to-be-divorced couples ride an emotional roller coaster. Below are some tips from a leading divorce lawyer that will help you through these trying times:

  1. Reduce your expenses
  2. Make sure you have at least one credit card in your name
  3. Keep a constant tab on the maintenance, utilities, taxes, etc., should you choose to keep the house
  4. Have health insurance in your name
  5. Do not stop working
  6. Get all joint bank accounts cancelled

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Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net