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:


Celebrity Dirty Laundry

Beyonce & Jay Z's Marriage Troubles Because…
Hollywood Life
Apparently, it's not a matter of if they'll divorce, but how and when, the article boldly suggests. “There's face-saving involved — they don't want to be looked at like other celebrities out there,” the insider continued. “They are business people ...
Beyonce And Jay Z Divorce Rumors Are Getting Crazier By The DayHuffington Post
Beyonce's Latest Instagram Is The Perfect Response To Those Divorce RumorsMTV.com
Beyonce and Jay-Z Divorce: Bey Never Wanted To Marry Jay-Z and Cheating ...Celebrity Dirty Laundry
Bustle -International Business Times -Urban Islandz
all 390 news articles »

International Business Times AU

Lamar Odom: Why He 'Doesn't Want To Divorce' Khloe Kardashian
Hollywood Life
He's not ready to let go! Lamar truly wants his ex Khloe to be happy but he still isn't willing to grant the 'Keeping Up with the Kardashians' star a divorce, a source tells HollywoodLife.com EXCLUSIVELY. Here's why. His NBA career is pretty much over ...
Lamar Odom Still Doesn't Want to Divorce Khloe KardashianInternational Business Times AU

all 17 news articles »

Tennessee's gay couples find divorce as complicated as marriage
The Tennessean
Gay couples seeking divorces face a hodgepodge of recognition laws and residency requirements. Nashville man says he's baffled why states that don't recognize his marriage won't let him divorce. Nineteen states and Washington, D.C., recognize same-sex ...


How Do I Know if I Should Get a Divorce?
Huffington Post (blog)
If you can honestly say that you have made every effort to save your marriage and you still feel as though there is no hope of reconciling, chances are you may be ready to move forward with divorce. Have you dealt with the emotions associated with divorce?
COLUMN: The long-held belief that half of all marriages end in divorce is ...Farmington Daily Times

all 4 news articles »

6 Things That Reminded Me Life Goes On After Divorce
Huffington Post
That's why we launched our Divorce Care Package series. With each post, we'll show you what things -- books, movies, recipes -- helped others relieve stress in the midst of divorce, in the hopes that a few of their picks will serve you well, too. Want ...


Legal Consultant on Divorce Extortion Cases Murdered in Florida
Village Voice (blog)
His academic writing focused on punishment theory and he kept a legal blog. He wrote op-eds for the New York Times and the Atlantic. Recently, he was also hired as a consultant for the defendants accused of running a divorce extortion operation ...


USA TODAY

Gays get little sympathy in battles to divorce: Your Say
USA TODAY
Lesbian and gay couples who live in states where their marriages aren't recognized are finding it nearly impossible to get a divorce. Comments from Facebook are edited for clarity and grammar: These folks have chosen to get married, in a country where ...


International Business Times

Kanye West Wants No More Kids With Kim Kardashian Amid Divorce Rumors ...
International Business Times
TV personality Kim Kardashian and rapper Kanye West leave a fitness club in Paris May 21, 2014. Reuters. Although Kim Kardashian has previously said she would like many children, it doesn't look like North West will have a sibling any time soon.
Kim Kardashian Divorce Option: Kanye West Abandons Kim Physically and ...Celebrity Dirty Laundry
Kim Kardashian's Divorce Struggles: Kanye West Emotionally Unavailable ...International Business Times AU
Kim Kardashian and Kanye West Heading For Divorce? Couple Fighting Over ...Headlines & Global News
International Business Times, India Edition -The Inquisitr -Latinos Post
all 449 news articles »

Wall Street Journal

Voices: Mike Miller, on the Benefits of Collaborative Divorce
Wall Street Journal
Voices is an occasional column that allows wealth managers to address issues of interest to the advisory community. Mike Miller is the founder of Integra Shield Financial Group in Plymouth, Minn. The term "collaborative divorce" was coined in ...

and more »

RumorFix

Is Tamra Barney Judge Headed for Another Divorce?
The Stir
Tamra Barney Judge might soon find herself as a Real Divorced Housewife of Orange County once again with the way things are going for her lately. There's new speculation that the reality star's husband Eddie Judge is so fed up with his wife's over-the ...
Shannon Beador Divorce Story Prompts Query About Joining RHOC: EXCLUSIVELALATE
'Real Housewives Of Orange County' 2014: Tamra Barney May Be Headed For ...Enstarz

all 60 news articles »
Google News

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

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

Four Tips to Save You Money in a Divorce Case

1. Have an Clear Written Fee AgreementMost experienced and effective... Read More

Steps Toward Divorce

When you're faced with the possibility of divorce it's important... Read More

Two Hearts Are Now One

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

9 Steps to Regaining Self-Esteem After Divorce

Divorce is difficult at the 'best' of times. Even when... Read More

How To Protect Your Life Insurance Policy While Going Through A Divorce

Life insurance, more than most things you buy, relates to... Read More

3 Major Divorce Parenting Mistakes And Learn How To Avoid Them

What 3 major divorce parenting mistakes that surely lead to... Read More

Divorce Advice: Getting Divorce Advice From the Right Source

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

Getting a Jewish Divorce in the UK

What is the Get?The Get is the Jewish form of... Read More

Child Support: 5 Key Things Every Parent Should Know

There is no magic solution to getting issues surrounding child... 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

Hire Divorce Lawyer or Use Online Divorce Forms

When do you need to hire a family law attorney... Read More

Divorce--Getting Legal Help Without Paying Exorbitant Attorneys Fees

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

How to Use a Divorce Lawyer

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

Divorce and the Stock Market

The most recent statistics show that about 50% of all... Read More

Why Men Wont Commit To Marriage

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

Divorce Makes Us Stronger

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

Divorce

The most recent statistics show that about 50% of all... Read More

Credit and Divorce

Mary and Bill recently divorced. Their divorce decree stated that... Read More

Divorce--How to Beat the System

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

Alienation of Affection - Interference with marriage can cost big bucks in North Carolina

Non-lawyers are often surprised to learn that a spouse can... Read More

Why Standard Visitation Should NOT Be Standard

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