Those who are thinking about divorce have probably taken a moment to review their finances. They know they will likely need to split bank accounts, and the savvy within the group may know they will need to distinguish between marital and separate property. Unfortunately, even the savvy can fall victim to some common financial mistakes when going through a divorce. You can better ensure you avoid these issues by getting an understanding of common problems before moving forward with the process. Three of the top financial issues that often occur during divorce include:
- Forgetting taxes. Although the Internal Revenue Service (IRS) generally does not tax the transfer of most assets during divorce, there are still tax implications. If you take a large portion of stock, for example, and later choose to sell it for more liquidity you may need to pay taxes on the sale.
- Wanting a specific asset. It is common for one spouse to have an attachment to a certain asset, such as a family home. You can negotiate to keep this property, but you may have to give up other assets to balance out the value of the home. If the other spouse knows about your desire to keep a certain asset, they may demand more than the property is worth in exchange for giving you that asset. If this is the case, you could get a valuation to help guide the negotiations and better ensure the asset is dealt with fairly.
- Not looking at the future. Do not forget to look into the future. Too often, a spouse will give up too high a percentage of retirement assets. These are very difficult to rebuild. Try to keep this in mind when negotiating property division options.
These are only a few things to consider when going through a divorce. It is wise to act to protect your interests. A proactive approach can help mitigate the risk of surprises after you finalize the divorce.