Common but avoidable financial errors in divorce

On Behalf of | Nov 5, 2018 | Firm News |

When people in Kentucky get a divorce, the process might be more difficult if they make common financial mistakes. For example, some people may go out and buy an expensive item during or after the divorce. This might feel better in the short term, but they will still have to pay the bill.

Another mistake is failing to understand the role of taxes. Liquidating an asset to pay bills could result in substantial taxes. This might also be the case if the couple needs to divide a 401(k). A distribution from a 401(k) needs to be rolled into an IRA, and the distribution must be done with a document called a qualified domestic relations order. Without an IRA or a QDRO, there will be taxes and penalties. People do not need to consider taxes for alimony as long as the divorce will be finalized after the end of 2018 since those payments will no longer be tax-deductible or tax-payable. Some people might take drastic steps to avoid alimony like quitting their job, but this will be costly in the long run.

Making a financial plan can help a person avoid some mistakes. For example, with the better understanding of finances provided by the financial plan, a person might avoid an error such as keeping the home without being able to afford its upkeep and mortgage.

The end of a marriage can be a difficult time, but a couple might still be able to successfully negotiate an agreement for property division, child custody, support and alimony. The complexity of these negotiations will vary based on how long the couple has been married and how many assets they have. For example, if one person owns a business, the business will need to be valued, and the couple may need to decide whether to sell it. Other complex investments could include annuities and retirement accounts.