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:


E! Online

Amber Rose All Smiles One Week After Filing for Divorce From Wiz Khalifa: See ...
E! Online
Despite recently filing for divorce from Wiz Khalifa, Amber Rose was all smiles while out and about in L.A.'s Studio City neighborhood yesterday! The 30-year-old beauty looked happy and healthy Tuesday while hitting a salon and spa with pals to get ...
Amber Rose escapes divorce drama at nail salonPage Six
Mariah Carey Divorce: Nick Cannon and Amber Rose Won't Admit Their ...Celebrity Dirty Laundry
Amber Rose Confides In Radio Host About Divorce And He Airs Her Dirty ...The Urban Daily
Hollywood Life -HipHopDX -MTV.com
all 144 news articles »

What It's Like To Get Divorced At 24
Huffington Post
Confession: I'm 24... and I'm divorced. In fact, the divorce was finalized just this month. The process was supposed to be wrapped up on July 15th, but stalled due to some conflict with the final decree. Now that it's final, I can't deny how strange it ...

and more »

Julia Roberts NOT Getting Divorce From Danny Moder, Despite Report ...
Gossip Cop (press release) (registration) (blog)
To make it seem as though its “sources” are clued in, the magazine often puts a purported price tag on the “divorce” — in this case, Roberts and Moder are primed for a “$225 million” breakup. But that figure, just like most of the details in the story ...

and more »

Wall Street Journal

Adviser Retains Both Clients After the Divorce
Wall Street Journal
"He wanted us to know what was going on and that they were meeting with attorneys and moving forward with the divorce," says Ms. Cliburn, senior managing adviser with BKD Wealth Advisors, which manages $2 billion for more than 1,000 clients in ...


National Catholic Reporter (blog)

Mercy Sr. Margaret Farley talks divorce, remarriage, and Communion
National Catholic Reporter (blog)
The extraordinary Synod of Bishops on the family has cast a new spotlight on the Roman Catholic church's teachings on divorce and remarriage. According to doctrine, Catholics who divorce and remarry outside of the church are prohibited from receiving ...
Acknowledging the Ones Who Stay: A New Approach to Studying DivorceFamily Studies
30 years ago in US Catholic: Why divorced Catholics won't just go awayU.S. Catholic magazine

all 3 news articles »

Lansing State Journal

Jones bill on divorce 'trolling' OK'd by Senate
Lansing State Journal
"When a woman is a victim of domestic violence and decides to file for divorce from her abusive husband, she should not have to worry about a trolling attorney tipping off her husband before she has time to protect herself and her children by taking ...

and more »

ABC News

Divorce Law out of Sync With Same-Sex Marriage
ABC News
Cori Jo Long, 31, and Brooke Powell, 30, did everything right before they married. They fell in love slowly, based on years of friendship stretching back to high school. They planned their nuptials carefully for about a year, choosing to travel from ...
Divorce Law Out Of Synch With Same-Sex MarriageCBS Local

all 49 news articles »

News One

Gina And Pat Neely To Divorce After 20 Years Of Marriage
Huffington Post
According to divorce docs obtained by TMZ, the couple has been separated for two years but continued to shoot their TV show despite their marital problems. The current fate of the show is unknown, but it appears the two are planning to try their hands ...
Food Network's Gina and Pat Neely file for divorceLos Angeles Times
Gina And Pat Neely Call It Quits On Their Marriage After 20 YearsNews One
TV cooking hosts Pat & Gina Neely file for divorceWXIA-TV
Hollywood Life -People Magazine -Madame Noire
all 56 news articles »

Christian Post

Kris Jenner and Bruce Jenner Divorce News: Keeping Up With the Kardashians ...
Christian Post
Kris Jenner, 58, cited irreconcilable differences in the divorce petition, a spokeswoman for the Los Angeles Superior Court said. The couple announced their separation in October last year. Kris Jenner is the star, along with her daughters Kourtney ...


ARA: Divorce parties, crazy or classy?
Albany Times Union (blog)
I am a 33 year old single mother of two and am very recently divorced. I am also having a Divorce party! I keep thinking: you celebrate your wedding with a party, why not celebrate your divorce-right? Anyway, just curious if you have heard of it and ...

and more »
Google News

Too Many Divorces

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

Women And Divorce: How Women Should Protect Themselves Financially Regarding Divorce

Women who believe a divorce is a possibility or who... Read More

Divorce and Uncle Sam: Top 10 Things You Should Know When Filing Your Taxes

1. What is my filing status? (Married, Single, Head 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

Divorce--The Five Obstacles to Agreement

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

Surviving Life After Divorce

After divorce, the most important thing you can do is... 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 Roadmap: The Route Around the Legal System

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

10 Ways to Keep Divorce Lawyers From Ruining Your Life

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

Divorce: Coping With The Family Law Process

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

Joint Bank Accounts and Divorce

Here are some useful tips on joint bank accounts and... Read More

How to Use a Divorce Lawyer

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

Rebuilding Your Life from the Ashes

One peculiar feature of a stepfamily is that they are... Read More

Hidden Divorce Costs

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

Spare Your Kids To 7 Most Distressful Divorce Parenting Situations

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

Four Tips to Save You Money in a Divorce Case

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

Deciding On Spousal Support

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

Does Living In A Loveless Marriage Necessarily Mean That You Should Get A Divorce?

Being in a loveless marriage is a frustrating predicament, but... Read More

Surviving Divorce: What To Think About To Ensure Surviving Divorce

Surviving divorce can be a valid fear if you're contemplating... Read More

The Job of a Divorce Attorney

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

Advantages to Doing Your Own Divorce

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

Stop Divorce: Should You Try To Stop Your Divorce If Youre Just Thinking About Getting A Divorce?

Thinking about getting a divorce doesn't necessarily mean that you... Read More