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Breaking up is hard:

Long after the wedding bells have faded, you may know someone who has come to a fork in the road and has decided to go in a different direction than their significant other.

Building a life with someone involves many things. There are memories, friendships, family relationships, and possibly children and pets. Love plants a seed that eventually takes deep roots as a family is born and grows. And while love isn’t always about money, divorce certainly can be.

Whether it’s just a house and a retirement account or something more complex like business ownership, other investments and stock options, unraveling a lifetime of work is difficult and emotionally complicated.

Although it is not possible to escape the emotional toll that a divorce can have, it is not in a person’s long-term interests to make or avoid decisions that will affect future well-being because of emotion. To avoid being a financial victim and starting a new life the wrong way, there are steps you can take before the divorce is final. It is best to make these decisions as dispassionately as possible using professional resources whenever possible.

People considering divorce should assemble a team of qualified professionals who can advise on the legal, tax, and financial impact of various proposed divorce settlements.

Here are some tips to keep in mind:

1.) Don’t become a financial victim. If you suspect a spouse is planning a divorce, make copies of important records and notify creditors, banks, and investment companies in writing.

2.) Don’t Prepare an Inaccurate Budget. People are usually required to produce an estimate for temporary maintenance (also known as Pendente Lite). But through oversight or inaccurate record keeping, this invariably leads to problems when they discover they are having trouble making ends meet on court approved maintenance based on the budget provided. It makes more sense to bring in a qualified financial professional at this stage to help prepare the budget.

3.) Do not try to use the courts to punish a spouse. In most states, equitable distribution is the basis of settlements. Hire a combative attorney or ignore other options such as mediation or collaborative practice it will be costly and toxic to post-divorce family relationships, especially when children are involved. (For a better understanding of this option, search for Divorce Collaborative or International Academy of Collaborative Professionals.)

4.) Don’t forget the common enemy: the IRS. As the proverb says: the enemy of my enemy is my friend. Both parties will be affected by the taxes. With careful planning ahead, this can be minimized. If assets must be sold or qualified plans are withdrawn early, this can increase the tax bill and reduce assets to live on after the divorce.

A 50/50 split may sound fair. But the bottom line is the share of marital property that each nets from the tax collector.

5.) Don’t use a divorce lawyer as a financial planner, accountant or therapist. With rates in excess of $300 per hour, it’s easy to rack up large bills and not get the expert advice that other professionals can offer.

6.) Don’t forget to secure the settlement. The premature death or disability of a spouse means the loss of support, maintenance, or help paying for college tuition and health insurance.

Make sure the life insurance lists the spouse receiving support as the owner of the policy. This way, if the paying spouse defaults on the premium, at least the beneficiary/owner will be notified and can take legal action to address the breach.

7.) Don’t keep the marital home if it’s not affordable. Too often, couples fight over who gets the marital home. While there may be sentimental value or legitimate concerns about taking the kids out of schools, it may not make financial sense to keep the home. After all, real estate is an underperforming asset (and has actually been a negative in recent history), while mortgage, taxes, and upkeep expenses can be a drain on post-divorce budgets. It usually makes more sense to sell the property while you are still technically a couple to get the maximum capital gains exemption ($500,000 based on cost) and split the proceeds to buy or rent another place.

8.) Don’t forget to change your beneficiary. Failing to remove and change the spouse from one of the qualified insurance plans or policies, unless required by the settlement agreement, could result in benefits or assets passing to someone the divorcing couple does not want to receive them .

9.) Don’t Forget to Close or Cancel Joint Credit Cards. To avoid problems, it is best to close credit cards for any new charges pending the final divorce. This will avoid the temptation of one spouse racking up charges.

10.) Do not accept a settlement without a valid QDRO. As long as a spouse has a qualified plan (for example, 401k or pension), a Qualified Domestic Relations Order will tell the plan administrator who is entitled to the asset and when. (Note that a QDRO does not apply to IRAs governed by beneficiary designations.) This is sometimes an afterthought, but it is essential. It is a good idea to look at the language in these commands. If not worded correctly, it could delay when a spouse will be eligible to start receiving benefits or could lead to investment decisions that may be unwise or detrimental to the spouse’s retirement interests.

There are several methods for valuing pension or retirement benefits. This is often overlooked by time-hungry divorce attorneys or court staff. Use a financial professional trained in these techniques to ensure that the settlement analysis is done correctly.

And make sure the attorney drafting the QDRO makes the beneficiary of the pension or retirement account eligible for initial benefits as soon as possible under the rules of the qualified plan. Otherwise, the beneficiary spouse may have to wait until the other account holder spouse makes withdrawals, which they may choose to delay out of necessity or spite. Some servicers will set aside the portion for the beneficiary’s spouse, so it’s a good idea to ensure funds are invested according to the beneficiary’s age and risk tolerance and not simply held in a low-cost money market account. interest.

11.) Don’t underestimate the impact of inflation. Without the right help reviewing settlement options or preparing a post-divorce plan, it’s easy to forget that the lump sum received today may seem like a huge sum but may be inadequate for inflation. Whether it’s for college tuition, health care, or housing, inflation can take a huge toll on a person’s budget and resources.

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