In discussing property distribution in divorce, many people tend to think of an inventory of items they want to take with them post-divorce, without regard to the actual value of the items at issue.
Dividing marital property involves much more complicated and nuanced choices, as this article on CNBC succinctly describes. We thought we would share some of the insights.
First, determine whether any assets are missing. Unfortunately, it is not uncommon in divorce to find spouses who will hide or dissipate assets. It is critically important to identify these missing or depleted assets early so that they can be valued and potentially recovered before entry of a final judgment.
Second, think about the tax implications of choosing certain assets. For example, if the parties decide to sell the marital home, the proceeds from the house if put into the purchase of another house will escape capital gains tax. On the other hand, receiving a share of an IRA will require payment of taxes as income upon receipt of benefits, usually at retirement.
Third, examine all joint bank accounts and credit card accounts. Ideally, you want to freeze a joint bank account until the court disposes of the asset, and you should set up a separate individual account upon separation to protect your interests. On the debt side, any credit purchases made prior to final entry of divorce will be considered marital debt; to avoid having to deal with bad debt or bad credit, have your name removed from all joint credit cards.
Fourth, avoid liquidating retirement assets to pay for divorce expenses. Any early withdrawal on retirement accounts has very high tax consequences. Worse, if you have a marital portion in that account, you will have to pay the other spouse that marital portion valued before the liquidation.
Fifth, try to keep emotion and sentimentality removed from property distribution. We realize this can be difficult in some respects, but the goal should be thinking long term – how to secure your financial future post-divorce, not compiling as many assets as possible to spite a spouse. You do not want to trade valuable future income just to take a former spouse’s favorite car.
Finally, know the law in your state and how it affects distribution of property. To do this, you need to consult with a knowledgeable family law attorney.
If you have questions about property distribution and divorce, contact us – we can help.