The end of marriage necessitates change, but even when New York spouses attempt to embrace their new financial standing as divorced individuals, they often still underestimate or forget about key differences in this new lifestyle. When contemplating divorce settlement agreements and the division of assets, it is crucial for both parties to pay attention to several key issues, or else they might find themselves in a bind later on.
People should not make the mistake of thinking joint liabilities will become solely their partner's problem after divorce. Even if one spouse offers to take full responsibility, it does not change the fact that, legally, both people are liable. The way to address this issue is to pay off debts or transfer them into one person's name. Taxes could change significantly when one's filing status goes from married to divorced. However, past tax returns could still be useful, as they might reveal tax assets, which are assets that decrease taxes owed. The after-tax value of assets one may receive in the settlement should be considered, not their current value before taxation unless the asset is exempt.
Spouses might want to pursue retirement assets aggressively in settlement talks, as there are ways for certain assets to be transferred without being taxed. Both Roth IRAs and Roth 401(k)s comprise funds that have already been taxed, so they will not be taxed again. Additionally, although they do not necessarily have a high financial value, digital assets should not be overlooked in a settlement. One final mistake people often make is underestimating their need for immediate cash flow. For example, if an individual is worried about expenses like grocery bills, he or she may wish to focus on assets like liquid accounts.
Getting a divorce is the first step to starting over, but not knowing what to expect might mean getting started on the wrong foot. A family law attorney could offer valuable advice on tax implications and the division of assets during a divorce.
Source: Market Watch, "Divorce? The 6 worst money mistakes", Leslie Thompson, September 23, 2014