Tax & Financial Impacts of Divorce: 10 Mistakes to Avoid

Divorce is something no one hopes will happen to them when they get married. Unfortunately, almost half of all marriages end in divorce. Since few people have pre-nuptial agreements, most divorces involve often bitter tangles over children, money, and assets. When it comes to the tax and financial implications of divorce, often your divorce attorney is not the only one you should rely on for advice.

I have found ten very common mistakes that people make in the divorce process. A tax or financial pro can help you avoid them.

1. Don't let emotions guide you in determining the divorce settlement. Divorce is about a lot of things, but is caused mainly by emotional issues or financial problems in the marriage. You may love or hate your soon-to-be ex, but you cannot rely on your "gut" feelings that they will do right by you or the children. You must make the settlement using reason and planning for the unexpected. He or she may want to pay a large alimony and a small amount in child support by telling you they want to see you are "taken care of." That may result in less tax for them, a lot more taxes for you and destitute children should you die before they reach 18. Financial planning is critical.

2. Get a good family law attorney, but don't forget to hire a financial professional to assist in evaluating assets and financial strategies. It may cost extra fees, but it will result in a far better settlement for you in most cases. A Certified Public Accountant (CPA), Certified Financial Planner (CFP), or an Enrolled Agent (EA) can be of invaluable help. What is the house really worth? If a business is involved, what are the consequences of its disposition or the true value of it in the divorce settlement? Your spouse might tell you their business is losing money or has no assets; you need to know the truth!

3. Getting the house in the divorce is not always a good deal. Women often want the house in the divorce because they are raising a family in it or have decorated it and are emotionally attached to the property. If it has a mortgage attached to it, think long and hard about the house. It might be better to sell it and split the equity. If you aren't working and are raising kids, do you really want a big mortgage payment?

4. Failing to fight for the most child support you can get! Large alimony and low child support payments are generally not a good deal to the spouse getting the payments. Alimony is tax deductible to the party paying but taxable to the party who receives it. A large payment is a large tax deduction for one party and a big tax burden to the person getting it. Child support is tax free to the recipient and not deductible to the payer. Also, alimony may terminate upon marriage or death, but Child Support continues until the child reaches 18.

5. Failure to specify who can claim the kids on the tax return. The divorce should specify who will be entitled to claim the children. Also, Form 8332 Release of Claim may need to be filed with IRS in some circumstances.

6. Lack of planning with regard to life insurance. Life insurance should be reviewed in the event of divorce. You may want to take your ex off of your policy as beneficiary, but do you really want to make your children beneficiaries? Unless they are over 18, this can be a big mistake as the funds may go to a trustee until the kids reach majority. Consult with your attorney on how to style your life insurance to best provide for the kids. If you are the person getting alimony or child support, it is a very good idea to carry a life insurance policy on your ex in the event of death. Otherwise the money stops coming and you may end up homeless.

7. No income modeling done in the calculation of alimony. Your spouse may be a corporate executive and have great future earning potential. He or she may have stock options. An income model should be made to determine the potential they have and how it can affect your claim in the divorce.

8. Failure to secure a Qualified Domestic Relations Order (Quadro) in the event of a 401K or other tax impacted investment that is divided in the divorce. If you don't do the right thing, huge tax penalties can be imposed on taking money out of IRAs, 401Ks, or Annuities. A good family law attorney can help with this but your Uncle Joe who handles bad check defense may not be the guy you want to do your divorce. He or she may not be familiar with a Quadro.

9. Failure to have assets professionally appraised. If you have rent houses, oil and gas investments, etc. Get a professional valuation or you may be cheated in the divorce settlement. The spouse who handles these investments may not be honest with you on the values. Just because he or she loves the kids or was married to you for thirty years does not mean you can trust them.

10. Lack of faith in yourself and your future. Divorce is bad but it is not the end of the world! You may have some tough times but your life will go on and it may be a blessed life. You don't know what tomorrow brings. It may bring love and happiness. You must have faith in yourself so that you can take care of the kids and be successful in whatever you choose to do. Money is not everything, but if you don't have faith in God and yourself, you won't be financially successful.

Well that is my list and it is my prayer that it has helped you in some way. Be strong and be forceful. Don't get walked on!

J.R. Coleman, E.A., A.T.A.
www.exirsman.com

James Robert Coleman, E.A., A.T.A.
Enrolled Agent & Accredited Tax Advisor
Member: National Association of Enrolled Agents
Former IRS Revenue Officer, GS-11
http://www.exirsman.com

In The News:


Chron.com

15 Things You Should Never Say To Someone Considering Divorce
Huffington Post
There are some things you probably wish someone had told you during the divorce process: "Don't treat your lawyer like your therapist -- it's costing you big time," for instance, or "always be the bigger person... even if your ex is dead-set on ...
Temporary divorce orders can protect both spousesChron.com

all 2 news articles »

Celebrity Dirty Laundry

Pregnant Beyonce Divorcing Jay-Z: Couple Use Fake Pregnancy as Cover-Up ...
Celebrity Dirty Laundry
Beyonce and Jay-Z are trying everything in their power to cover up their disastrous PR mess from the last few months. Divorce? What divorce? At least, that's what they want you to believe. Baby bump rumors, singing about Beyonce's next pregnancy ...
Beyonce, Jay Z Renew Wedding Vows; Officially Squash Divorce RumorsChristian Post
Beyoncé and Jay Z Put Divorce Rumours to Bed by 'Working on New Album'International Business Times UK
Jay Z And Beyonce On The Run Tour: Queen Bey Challenges Divorce Rumors ...KDramaStars
The Stir -Music Times -kfor.com
all 297 news articles »

Divorce Hits Children In Higher-Income Families The Hardest, Study Says
Huffington Post
As the divorce rate began to rise in the 1960s and level off in the early 1980s, the face of American families underwent major reconstruction, leaving individuals and psychologists alike wondering: How are the children faring? Well, aside from the rich ...


Detroit Free Press

Is Daryl Hannah the reason behind Neil Young's divorce?
Detroit Free Press
When the news arrived in July that Neil Young and his wife, Pegi Young, were divorcing after 36 years, the big question was, of course, why? Do we now have the answer? Is it Daryl Hannah? Yahoo.com has some photos of activist/actress Hannah, 53, ...
Neil Young is dating Daryl Hannah: reportToronto Star (blog)

all 11 news articles »

5 Divorce Facts That Might Change Your Idea of Splitting Up
PsychCentral.com (blog)
Many people think they have it all figured out when it comes to divorce. The whole “50 percent of marriages end in divorce” statistic gets thrown around a lot. Everyone knows someone whose family was torn apart by it. But there's so much more to know ...

and more »

The Top 7 Mistakes Women Make In Divorce, According To A Lawyer Who's ...
Huffington Post
Sometimes a husband will create a mountain of debt without telling his wife. Or, he'll amass more assets than she's aware of. Either way, the divorce will take longer if the wife isn't in the loop. "If you think your'e going to file for divorce," Zung ...

and more »

SFGate (blog)

Jewel: 'Divorce plans are going well'
SFGate (blog)
Singer Jewel is staying positive about her marriage split, insisting she's “heartened” by the way she and her estranged husband Ty Murray are planning their divorce. The star announced the break-up on her official website in July, revealing she and the ...
Jewel says she's 'doing good' following split from husband Ty Murray after 16 ...Daily Mail

all 90 news articles »

Divorce and Parenthood
New York Times
Married and divorced parents are not different. The “emotional impulse” in divorce “to hurt back” hurts the children only more. There is no greater pain than to be alienated from one's children after separation and divorce, and most children wish that ...


Column: Class puts children first in divorce
Helena Independent Record
Parents who divorce in Helena and Townsend, are required to attend Children First, a two-hour class taught by a judge, a mediator and a therapist. The presenters describe how divorce affects children of different ages, living situations that tend to ...


ABC News

Samira Wiley's 'OITNB' writer girlfriend files for divorce from husband
Los Angeles Times
An "Orange Is the New Black" writer who was actress Samira Wiley's Emmy Awards date back in August has reportedly filed for divorce from the guy she married just months before joining the staff of the women's prison show. Lauren Morelli and Steve ...
'Orange Is The New Black' Writer Divorces Her Husband, Starts Dating PousseyHuffington Post
Samira Wiley & 'OITNB' Writer Dating After Divorce From HusbandHollywood Life
'Orange Is the New Black' Writer Files for Divorce, Dating Actress Samira WileyABC News
New York Daily News -TMZ.com -People Magazine
all 219 news articles »
Google News

Reasons You Arent Starting the Decision Making Process About Whether To Get a Divorce Or...

Stay MarriedAlong with any tough decision comes reluctance, especially when... Read More

Divorce Online Sevice - Why Should We Lose Money And Time Applying For Divorce?

Attempts to use the worldwide Web as an effective means... Read More

Divorce--Overcoming the Obstacles to Agreement: Ten Steps

You're going to want to be working on your divorce... Read More

Divorce Makes Us Stronger

My friends call me the "Divorce Poster Child".At the age... Read More

How Can Collaborative Law Be Beneficial In Your Texas Divorce?

Collaborative law is based on the realization that the commitment... Read More

Grieving the End of Your Marriage, as You Know it

The pain of finding out that your partner is cheating... Read More

Divorce--How to Beat the System

Of course you want to get your Judgment--that's the goal... Read More

10 Ways to Keep Divorce Lawyers From Ruining Your Life

Everyone has heard the story (from friends, co-workers, and family... Read More

Extramarital Affair: Should You Get A Divorce Just Because One Of You Had An Extramarital Affair?

Having to deal with an extramarital affair can be a... Read More

The Heart Moves On: Using Ceremony to Mark the End of a Relationship

Divorce or the end of a long-term relationship is a... Read More

Tax & Financial Impacts of Divorce: 10 Mistakes to Avoid

Divorce is something no one hopes will happen to them... Read More

Too Many Divorces

My oldest boy asked me something the other day about... Read More

Healing Dysfunctional Families

In a recent article entitled "Some Evidence On How We... Read More

Cheating Husbands - Meeting Needs?

Husbands cheat on their wives for many reasons. They could... Read More

Houston Divorce Lawyer - West Houston Attorney Answers Common Questions About Mediation

If you are reading this, then you are probably either... Read More

Divorce Articles: How To Get The Most From A Divorce Article

There are many types of divorce articles available on the... Read More

Divorce--Getting Legal Help Without Paying Exorbitant Attorneys Fees

Ignorance is the most common trap in the business of... Read More

Divorce: How To Survive A Divorce And Move On With Your Life

One out of every two marriages in America is failing.American... Read More

Spousal Emotional Abuse During Divorce--What You Can Do

Is your spouse violent, abusive, harassing? In cases of harassment... Read More

Divorce: Coping With The Family Law Process

The EmotionsDivorce is a scary, lonely and misunderstood process for... Read More

Coping With Divorce Anger

Successfully releasing your anger will help you begin healing after... Read More

Commitment

Being marriage means being fully committed to your husband as... Read More

Divorce: Secrets To Coping With A Divorce Announcement

During a wedding ceremony, when people are joined together in... Read More

The Job of a Divorce Attorney

Marriage is a very solemn and serious chapter on any... Read More

Love and Marriage Fairy Tale

When we were children we believed in fairy tales and... Read More