Ending a marriage involves many decisions that, among other things, can have long-term financial consequences. Preparing your finances should be an important part of your divorce planning.
Property division
California is a community property state where all assets acquired by either spouse during their marriage are joint marital assets which are usually divided equally when they divorce. Couples, however, often reach an agreement on dividing their property.
Bartering is a typical method for resolving property division disputes where a spouse gives up certain items in return for others. Selling property and dividing the sales proceeds equally is another method. Mediators or arbitrators can also help couples resolve these disagreements.
The timing of selling or acquiring major assets during a divorce may also have legal consequences. An attorney should be consulted before making these transactions.
Debt
Determining who is liable for debt can be difficult and requires finding out which spouse owes what and to whom. Credit reports will reveal everything owed in your name and through joint accounts.
Use these reports to identify debt that is shared or debt that is solely in your spouse’s name. Then, it is important to prevent the debt from growing during your divorce. Cancel joint credit cards and leave one card in your name for emergencies.
Spouses must decide who is responsible for debts. If possible, pay off the debts now by withdrawing savings or selling assets. Each spouse can agree to take responsibility for debt in return for assets in property division.
Spouses may agree to share debt equally. But you are still responsible if your spouse does not pay even if that spouse signed an agreement assuming responsibility for the debt.
Taxes
Divorce decrees may involve tax issues including which spouse will be eligible for the tax exemption for dependents, which spouse may claim head of household status, whether maintenance payments are deductible, and assuring that child support is deductible.
Retirement plans
Spouses may be entitled to half of their spouse’s retirement savings. A 10 percent penalty may be imposed, however, if IRS regulations are not followed.
Divorce is also a time for reviewing your retirement planning. Before divorce, joint assets were going to pay for retirement. Now, a spouse will finance their own retirement with their sole assets.
Be aware
Divorce may bring out the worst in spouses who may hide assets or avoid disclosure. This can include underreporting income or asking employers to delay a raise or bonus. A spouse who owns a closely held business has many options for deception.
An attorney can help spouse learn about their options and assure that their rights are protected. Attorneys can also represent their interests in negotiations and legal proceedings.
