Divorce and Financial Mistakes

For many couples, recovering from the holidays also means considering an end to their relationships. The end of the often-forced festivities of the holidays can launch the beginnings of divorce. Some attorneys have nicknamed January “Divorce Month,” after the high number of cases they see at the start of the year. While couples deal with the emotional consequences of an impending divorce, each spouse should also consider the financial impacts that result from a split.

Divorce and Hidden Assets

A major consideration in many divorce cases is the value of the marital assets. In “community property” states, such as Texas, any assets either spouse accrues during the marriage are to be divided between the spouses after the divorce. The community property rule can lead to spouses attempting to hide assets from the other partner. If a judge discovers that a spouse has hidden assets, the judge may force that spouse to pay more to the other spouse, as well as fines and possible jail time.

Divorce and Taxes

One serious issue that couples going through divorce often ignore is their tax situation. Just as different assets have different values, they also carry different tax consequences. The sale or liquidation of assets to cover divorce costs can include some unforeseen tax consequences. For instance, a spouse may choose to cash out a tax-deferred retirement account to pay off debts from the divorce. The issue becomes that, once the spouse cashes out that account, the tax liabilities can be staggering.

Divorce and Retirement Accounts

While the balance sheet of a retirement account may show a specific amount, that amount may not reflect the current value of the account at the time of the divorce. Retirement funds are typically not available before retirement without significant penalties. Many retirement accounts carry penalties for early withdrawal, as well as the aforementioned tax liability. These expenses can add even more to the cost of a divorce.

Divorce and Jurisdiction

If the spouses live in different states, the divorce process can become both complicated and expensive. In one instance, a man living in North Carolina filed divorce proceedings against his wife. She was living in South Carolina and served him with her divorce papers before he could serve his to her. The attorneys for both sides worked out an agreement on jurisdiction, otherwise the process would have involved judges in both states, making for a long and costly effort.

Divorce and Joint Accounts

Couples with joint bank accounts, insurance policies, and credit cards will face some complicated maneuvers during a divorce. Spouses may be called on to change the beneficiary designation on their life insurance policies, retirement accounts and other financial instruments. They should also contact their health insurance providers to have the ex-spouse dropped from their coverage. Credit card providers must be notified to remove unauthorized users from taking out more consumer debt after the divorce.

Source: CNBC

Get Answers For Your Divorce Questions

To find out how we can answer your questions about your divorce case, contact one of our attorneys today. Our intake team will take down the details of your divorce and quickly connect you to an attorney who understands divorce law and how your status affects your case. You can also fill out the “Confidential Evaluation” form at the top of this page.

NOTE: This post is a news story and does not imply an endorsement of Arguello Law Firm by any concerned parties mentioned herein.