Financial issue of Divorce

Dividing Property

Many people come to an amicable agreement about the division of property, but if there’s disagreement about one or more items, there are a number of fair methods of deciding who gets what. One of the most common is bartering, where one spouse takes certain items in exchange for others. For example, the wife may take the car and furniture and the husband may take the truck and tools. 

Dividing Debts

Often even more difficult than dividing the property in a divorce is deciding who will be responsible for the debt the couple has incurred. In order to do this, you’ll need to know how much you owe. Even if you trust your spouse 100%, do yourself a favor and order your joint credit report from each of the three credit reporting agencies. People have been known to run up debt without their spouse’s knowledge, especially when they’re contemplating leaving the marriage. Overlooking this step could cost you years in debt repayments.

Next, go through the credit reports and identify which debt is shared and which is in your spouse’s name only. At this point it’s important to stop the debt from growing any larger while you’re in the process of getting divorced. The best way to do this is to cancel most of your credit cards, leaving perhaps one to use for emergencies.

Tax Issues in Divorce

People sometimes get caught up in the obvious issues of divorce such as the division of property and debt, who will have custody of the kids, etc., and don’t think through the tax implications of divorce, an oversight that can cost you thousands of dollars and more. Tax issues include:

 

  • Who will get the tax exemption for dependents?
  • Who will be able to claim Head of Household status?
  • Which attorney fees are tax deductible?
  • How can you be sure “maintenance” payments will be tax deductible?
  • How can you avoid the mistake of having child support be non-deductible?

Retirement Plan Issues in Divorce

If your spouse has retirement savings, you are probably entitled, by law, to half. This money can be used for your own retirement or for a down payment on a house, relocation expenses, or other current expenses.

A Word About Dishonest Spouses

Divorce can bring out the worst in some people, and you need to be aware that even the most honest of people may try to cheat when it comes to settling up financially in a divorce, by under-reporting income, asking an employer to delay a large bonus or salary increase, etc. Most vulnerable are those whose spouse owns a closely-held business.

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