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:


Dallas Morning News

When could a CEO's divorce materially affect a company's future?
Dallas Morning News
On May 18, 2012, Jane Doe filed for divorce against John Doe. The petition seemed as routine as the thousands of other divorces filed in courthouses every day across the country: She claimed her husband had cheated and she wanted half of everything.
Could the Costliest Divorce Ever Make This Woman Richer Than Oprah?Motley Fool
Most Expensive Divorce Ever? Billionaire Oilman Claims He's Lucky2paragraphs.com
Billion-dollar divorce: was husband brilliant businessman or just lucky?Family Law Week

all 6 news articles »

Guardian Liberty Voice

Beyonce and Jay-Z Divorce Rumor, Solange Elevator Fight a Publicity Stunt?
Guardian Liberty Voice
Recently, the media has been blowing up about the possibility of a divorce between singer Beyonce and rapper Jay-Z. But, according to Matthew Knowles, Beyonce's father and former manager, the divorce rumors, along with the Solange elevator fight, was a ...
Beyoncé's dad hints divorce rumors are stunt to sell tour ticketsNew York Daily News
Beyonce's Dad -- Jay Z Divorce Rumors Are Just a 'Jedi Mind Trick'TMZ.com
'Jedi Mind Trick!' Beyonce's Dad Admits Jay Z Divorce Rumors Were 'Trick' To ...Radar Online
Celebrity Dirty Laundry -The Inquisitr -Huffington Post
all 243 news articles »

For same-sex marriages, divorce is out of reach
Sarasota Herald-Tribune
“It's ironic that as people now fight for marriage equality here, I am now trying to have divorce equality,” said Vacca, who described a 17-year relationship with her partner that ended in 2012, three years after their marriage in New Jersey. “I was ...

and more »

New Study Reveals Interesting Link Between Men's Height And Divorce
Huffington Post
Short men were found to marry later in life than average or tall men, but were 32 percent less likely to divorce. They were also more likely to marry less educated and younger women. Once married, they did less of the housework and earned a much higher ...

and more »

Today's divorce can mean cake and eating it, too
Colorado Springs Gazette
Divorce, it seems, has turned into a party - special cakes and all. Event planners, bakers, lawyers and academics note the rise of "divorce parties" over the past several years, many with cakes featuring weapon-wielding brides or gloomy black frosting ...


Naples Daily News

It's The Law: Surprises when property is divided in divorce
Naples Daily News
Question: I am getting divorced. I inherited a lot of money from my father and do not think my spouse should get any of that. Somebody told me Florida law divides property in divorce 50/50. If that's true, I have a problem. Can you explain? Answer ...


International Business Times AU

Court Grants Indian Man Divorce Over Wife's Insatiable Sex Demands
International Business Times AU
"Due to respondent's (wife's) non-appearance before the court, the petitioner's (husband's) evidence remains unchallenged on record. Hence this court has no option but to accept his evidence as it is and he is entitled to a decree of divorce as prayed ...
Court grants man divorce over wife's demand for excessive sexTimes of India
Man gets divorce after wife asks for too much sex!TheHealthSite
Indian man gets divorce after wife makes too many sexual demandsNEWS.com.au

all 32 news articles »

USA TODAY

Wife of radio host charged with shooting at her seeks divorce
Cincinnati.com
The wife of a local radio show host charged with shooting at her filed for divorce this week as sex-related convictions against Blake Seylhouwer were uncovered by The Enquirer. Misty Seylhouwer filed for divorce Wednesday from her estranged husband ...
newsUSA TODAY
Woman shot in the head by husband files for divorceWKRC TV Cincinnati
Wife of local radio host charged with shooting her files for divorceWCPO

all 4 news articles »

7 Ways Divorce Affects Kids, According To The Kids Themselves
Huffington Post
If you're a parent considering divorce, fear of the unknown can drive you nuts. How will this affect the kids, you wonder. Will their grades slip? Will they hate me for putting them through this mess? Is this going to scare them off marriage and ...

and more »

SaharaReporters.com

Charismatic Pastor Chris Oyakhilome, Wife in Messy Divorce
AllAfrica.com
According to reports monitored yesterday on TheCable.ng, an online newspaper, the dissolution of the marriage between Chris and Anita, has entered the final phase with the wife seeking divorce on the grounds of "unreasonable behaviour" and "adultery".
Oyakhilome Divorce - Wife's Profile Removed From Christ Embassy WebsitePremium Times
Divorce Scandal: Anita Oyakhilome's Name Removed From Christ Embassy ...SaharaReporters.com
Christ Embassy Torn Apart By Oyakhilme's Divorcespyghana.com
DailyPost Nigeria -Bulawayo24
all 47 news articles »
Google News

Spousal Emotional Abuse During Divorce--What You Can Do

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

Contested And Uncontested Divorce

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

Hidden Divorce Costs

Divorce has become part of life in the 21st century.... Read More

Divorce--Negotiating Agreement: Ten Steps

The best predictor of a good divorce outcome is the... Read More

Reasons For Divorce; What Constitutes Viable Reasons For Thinking About Or Wanting A Divorce?

According to the Center for Disease Control's National Vital Statistics... Read More

How to Use a Divorce Lawyer

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

Choosing Your Divorce Method

The biggest mistake that people make when getting divorced is... Read More

Why Men Wont Commit To Marriage

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

Divorce Roadmap: The Route Around the Legal System

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

Spare Your Kids To 7 Most Distressful Divorce Parenting Situations

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

A Time of Grief and Healing After Separation and Divorce

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

An In-Depth Look at Army Divorce Rates

Raleigh, NC-The largest divorce firm in the state, Rosen Law... Read More

Divorce--The Five Obstacles to Agreement

This article and my articles "Overcoming Obstacles to Agreement" and... Read More

Seven Sets of Documents You Need For Your Divorce

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

Surviving Life After Divorce

After divorce, the most important thing you can do is... Read More

Divorce Decision: Things To Consider When Making A Decision About Divorce

When making a divorce decision, there are quite a few... 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

Get Over A Divorce and Prepare for Divorce Recovery!

It can be difficult to get over a divorce and... 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

7 Ways to Rediscover Your True Passion after Divorce

Going through a divorce is a very challenging time in... Read More

Effects of Divorce on Children

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

Divorce and Children: Things To Consider When Youre Staying Married Only For Your Children

All children are different and respond differently to divorce. Depending... Read More

Commitment

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

Does Your Sexless Marriage Have You Thinking About Divorce?

If you are in a sexless marriage and are unhappy... Read More

How Can Collaborative Law Be Beneficial In Your Texas Divorce?

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