I was reading through the archives of KentuckyLiving magazine and came across an excellent article from Jim Thompson. The article is almost 9 years old, but provides information helpful to men and women beginning the divorce process today. The article is as follows:
First of all, both men and women should realize that their standard of living will suffer because of the divorce, at least initially.
Second, get a handle on your finances. Try to project your financial future and the income needed to support it. If children are involved, who will have custody? Will maintenance or alimony as well as child support be a factor?
Taxable or tax-deductible?
In the emotional upheaval of the divorce, tax law may seem insignificant. But reality will hit hard when your tax bill suddenly becomes more than you can afford to pay.
If your final decree is before year’s end, you lose any right to claim a spousal exemption.
Newly separated or divorced couples sometime assume that child support and alimony are one and the same. False.
Child support is a fixed payment designated by a divorce or separation agreement as being specifically for the support of the child. Payments for support of minor children are not deductible, nor are they taxable to the recipient. Alimony, on the other hand, is a set amount paid to a former spouse in accordance with a divorce decree. Payments are taxable to the person receiving them and tax-deductible for the person making them.
While the cost of obtaining or resisting a divorce is not deductible, you can deduct fees paid to an investment adviser or accountant for related tax advice. You also may be able to deduct fees paid to other professionals, such as appraisers and actuaries.
House & pension plan
The two most valuable assets involved in a divorce are usually the house and the pension plan.
The value of the pension plan can be split between the two spouses. Future benefits and earnings go into the account of the person earning the pension. The other person may have the choice of taking his or her share in a lump sum or as ongoing income in retirement.
Reducing divorce costs
In a mildly complicated divorce case, the expenses could easily go up to $15,000 to $20,000 per spouse. You can contain these costs.
One key is resolving disputes before they bog down in court. Don’t battle over furniture, cars, and personal property not worth the cost of litigation.
Go for mediation. This is an informal process in which a neutral third person helps warring parties resolve their disputes.
As a means of cutting costs, settlement before trial is critical. More than 90 percent of all divorce cases are settled before going in front of a judge.
Divorce won’t be easy for either party, but having a handle on finances will help you focus on how the assets can best be split to benefit both parties.
Divorce Do’s & Don’ts
DO
· Collect financial information and organize it prior to seeing your lawyer. Be reasonable in your expectations. Do not expect your spouse to be punished or yourself to be rewarded.
· Look at the long-term financial effects of the proposed settlement, such as future tax consequences and cash-flow issues.
· Try to work out personal-property issues with your spouse. A judge won’t know the personal significance of the record collection or the silver service.
· Be patient. It can take time to unravel a marriage, especially one that has lasted for a number of years.
DON’T
· Sign papers or agreements just to get the process over with. You could be forfeiting your financial security or agreeing to something you will later regret.
· Expect your spouse to be fair to you or good to you.
· Sign blank tax returns or any other forms.
· Share your spouse’s attorney. There could be a conflict of interest, even if you plan on an amicable divorce.
· Lie or exaggerate to your attorney.
· Hesitate to hire trained experts to assist you. Tax advisers, certified divorce planners, career counselors, and estate planners may help you now and could save you some grief and money later on.
