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:


TMZ.com

Gwyneth Paltrow, Chris Martin Divorce a Done Deal Documents Filed Today
TMZ.com
Gwyneth Paltrow and Chris Martin have sealed their deal on divorce, and the documents will be filed later Monday ... TMZ has learned. Sources connected with the couple tell us ... Gwyneth and Chris have been using their business managers to hash out a ...
Gwyneth Paltrow and Chris Martin Filing for Divorce With the Terms Already ...E! Online
Gwyneth Paltrow and Chris Martin Finalize Divorce: ReportPeople Magazine
Gwyneth Paltrow, Chris Martin finalizing divorce 1 year after breakupNew York Daily News
Extra -HarpersBAZAAR.com (blog) -Yahoo Celebrity UK (blog)
all 57 news articles »

TMZ.com

Josh Hamilton -- Wife Blindsided By Divorce ... I Never Cheated On Him' MLB ...
TMZ.com
0420-josh-hamilton-katie-hamilton-Getty-twitter-01 Josh Hamilton's wife Katie says she was completely "blindsided" by her husband's decision to file for divorce -- telling TMZ Sports she'll always love the baseball star. Hamilton filed the divorce docs ...
Josh Hamilton's wife shocked by divorce filing: 'I've never cheated' on himDallas Morning News
Josh Hamilton Filed For Divorce From Wife After Reports of Drug Relapse ...Bleacher Report
Josh Hamilton, Wife Katie Filed For Divorce In February After Relapse Surfaced ...International Business Times
Extra -Reality Tea -Daily Mail
all 10 news articles »

New York Daily News

Angels outfielder Josh Hamilton files for divorce from wife of 11 years
New York Daily News
The divorce petition was filed in February in Tarrant County, where Hamilton played five seasons with the Texas Rangers, the Dallas Morning News reported. Hamilton met with officials from MLB that same month to discuss a cocaine and alcohol relapse.
Josh Hamilton Files For Divorce In Tarrant CountyCBS Local
Josh Hamilton files for divorce from wife, KatieESPN
After filing for divorce, Angels player Josh Hamilton's Newport Coast home is ...OCRegister

all 219 news articles »

E! Online

Zachary Levi and Missy Peregrym to Divorce: Couple Split Less Than 1 Year ...
E! Online
The 32-year-old Canadian actress, known for roles on Rookie Blue and Reaper, filed for divorce from the 34-year-old former Chuck star in Los Angeles last week, E! News has learned. Peregrym cited irreconcilable differences as the reason for the breakup ...
Missy Peregrym, Zachary Levi go from surprise wedding to quick divorceLos Angeles Times
Zachary Levi, Missy Peregrym Divorce: 10-Month Marriage Ends After 'Secret ...The Inquisitr
Zachary Levi & Missy Peregrym Secret Wedding Ends In Even More Secret ...TMZ.com
Gossip Cop -Hollywood Life -Starpulse.com
all 42 news articles »

Maine bills could lessen custody tensions during divorce
Bangor Daily News
AUGUSTA, Maine — Bills aimed at lessening tensions between divorcing parents of minor children will be heard Tuesday afternoon before the Legislature's Judiciary Committee. Two bills would add to the “best interest of the child” standard used by ...

and more »

PsychCentral.com (blog)

Life After Divorce: How My Father Changed My Perspective
PsychCentral.com (blog)
When I told my parents that I was getting a divorce, my dad said what most Jewish dads would say, “Well, now you can find yourself a nice lawyer or maybe a doctor.” “It's funny, Dad,” I said. “They don't have that section on the dating sites — not ...


Jezebel

The Literally Broken Hearts of Divorce
Jezebel
So it should come as no surprise that marriage, divorce, and widowhood come with their own health-related complications. Researchers are still trying to establish the why and how of it, but several studies have shown that your so-called “marital ...
The Grass Isn't Greener: Considering The Financial Ramifications Of DivorceFinancial Advisor Magazine
Divorce could hurt your retirementIndependent Online

all 3 news articles »

Dallas Morning News (blog)

Hurst police identify man accused of strangling wife who sought divorce
Dallas Morning News (blog)
Hurst police have identified a Haltom City man accused of strangling his estranged wife last week. Randy Cummings, 42, faces a charge of capital murder in the death of his wife, Laura Cummings. Police said they were in the process of getting a divorce.


Christian Post

Sarah Jessica Parker Back on HBO With New Series 'Divorce'
Christian Post
The story of divorce, she also said, was something most people may be able to relate to, as some of them may have experienced it already, or are about to experience it. Sharon Horgan is penning the new show. The series will start production in New York ...
Sarah Jessica Parker To Star And Produce Comedy Series 'Divorce' For HBOTech Times
What's Sarah Jessica Parker's Most Memorable Purchase?Vegas Magazine
Sarah Jessica Parker to star in TV show DivorceNEWS.com.au
Las Vegas Blog (blog) -The Irish Film Television Network
all 33 news articles »

RadarOnline

Bobby Flay Reportedly Cheated On Wife Stephanie With His Assistant, Now ...
RadarOnline
Chef Bobby Flay filed for divorce from his wife Stephanie March earlier this month, but the drama doesn't stop there! Rumor has it Flay struck up a relationship with not just another woman, but his own assistant! According to Page Six , the ...
Bobby Flay accused of cheating with assistant as divorce from Stephanie March ...Daily Mail
Bobby Flay Divorce: Stephanie March Demands More Money - Chef Allegedly ...Celebrity Dirty Laundry
Stephanie March: Divorce Getting Ugly Amidst Rumors That Bobby Flay Had a ...WebProNews
Us Magazine -Page Six
all 53 news articles »
Google News

Why Standard Visitation Should NOT Be Standard

When a nuclear family separates, it usually separates into a... Read More

A Time of Grief and Healing After Separation and Divorce

I thought I would never feel the light of life... Read More

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, The Hardest Thing You Have To Do

Knowing What To Do In DivorceKnowing what to do when... 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

Deciding On Spousal Support

No matter which side you are on, spousal support is... Read More

Effects of Divorce on Children

When a couple decides their marriage is over, a tremendous... Read More

Spare Your Kids To 7 Most Distressful Divorce Parenting Situations

What 7 most distressful situations to kids that divorced parents... Read More

Divorce Roadmap: The Route Around the Legal System

Let's look at how a divorce case works so you... Read More

Divorce Advice: Getting Divorce Advice From the Right Source

Getting the right type of divorce advice depends on what... Read More

Love and Marriage Fairy Tale

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

How to Use a Divorce Lawyer

You want three things in your divorce attorney: expertise in... Read More

Divorce Makes Us Stronger

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

Marriage - Divorce - Separation - How to Handle the Split Loyalties with Friends After Separation

We have all most probably encountered it at some stage... Read More

Anatomy of a Divorce: How it Really Works

The legal divorce vs. your real divorce The legal... Read More

Commitment

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

Grieving the End of Your Marriage, as You Know it

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

Contested And Uncontested Divorce

A divorce case is contested if the parties cannot agree... Read More

Two Hearts Are Now One

It is fitting that I should write this story on... Read More

What Are You Waiting For?

So, you've decided that you're no longer "a couple", but... Read More

Why Men Wont Commit To Marriage

A common reason why men wont commit could be due... 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

Advantages to Doing Your Own Divorce

There are many advantages to doing your own divorce. Three... Read More

Seven Sets of Documents You Need For Your Divorce

Even if you believe your case will ultimately be agreed... Read More

Spousal Emotional Abuse During Divorce--What You Can Do

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