by Dave Landry Jr. and Virginia L Colin, Ph.D. (mostly Dave)
If you have decided to divorce, that was probably a very difficult choice to make. Divorce can involve stressful emotions and stressful negotiations about legal matters. This is especially likely when a divorce involves children and complex finances. Your divorce can become ugly, messy, and expensive because of contested financial settlement proposals and/or child custody battles. You can save yourself a lot of grief by working with a mediation-friendly attorney and a professional family mediator.
Basic Financial Considerations
If you do file for a divorce, be aware that there are guidelines to follow in order to produce an amicable outcome for both parties. If you have a retirement plan, you may be asked to give part of it to the other party. If you are relinquishing your assets or receiving assets from your ex-spouse, there are rules that govern this asset transfer. There may be taxes associated with the division of assets. The type of retirement plan and when and how it is transferred, for example, will determine the amount of taxes that will have to be paid and who will be responsible for paying them. Well-trained family mediators, lawyers, and financial advisors know how to keep tax consequences to a minimum.
In a divorce, here are some of the essential financial considerations:
- What are the marital assets involved?
- Alimony
- If applicable, how much child support will be paid?
- Child tax credits and which party can claim dependent exemptions
- Selling the house
- 401K plans and IRAs
- If applicable, liquidating or continuing with a business
- Pension plans, Qualified Plans, and 403(b) plans
- Living expenses
- Income
- Bank accounts
- Life Insurance
- Debts
- Investments such as mutual funds, stocks, bonds, and annuities
- Other real estate owned.
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Property Division
If you own a home while married, you may have to include this when dividing assets. Property also includes things like:
- Timeshares
- Cars
- Rental properties
- Equipment
- Works of art
- Jewelry
- Furniture and household goods
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Real Estate
If you have a house, you can sell it and split the proceeds. However, if you have minor children, it may be difficult for them to make the adjustments involved in moving to a new home. So, you and your ex should think about this carefully, maybe with help from a mediator. You may decide that the house should go to the parent the kids spend most of their time with. That way you maintain stability for the children in the home. You may have other shared assets that can go to the parent who is not getting the house, so that each parent gets a fair deal.
IRAs and 401Ks
The law allows for IRA assets to be divided. However, a retirement account can also continue to be the property of the person who owned it during the marriage. The division of a retirement account can be non-taxable if part of the value is transferred or a rollover is done. The spouse who owns the asset after the divorce is responsible for the taxes associated with any ensuing distributions (which may not begin until that person retires). A pension plan such as a 401K may also be qualified for division. The retirement benefit is transferred from one person’s plan to the other and considered to be marital property division.
Child Support
When children are involved, child support will be part of the divorce settlement agreement or the divorce proceedings. The Commonwealth of Virginia provides guidelines for calculating the amount of child support that is probably appropritate. These guidelines take account of each party’s income, adjustments for spousal support (alimony), child care expenses, the costs of health insurance for the children, and other relevant factors. A mediator or an attorney can help you compare your budgets with the amount of child support the guidelines recommend. You and your ex can also plan ahead for the costs of future education for the children.
A Common Mistake
A common error in a divorce proceeding is assuming that both parties will agree to a 50/50 split. Such a division does not always yield an equitable divorce settlement because there will may be foreseeable future earnings and household expenses that warrant a different way of dividing assets.
The Goal
It is best to work things out in an amicable fashion so that both parties can move on. It is especially important to stay civil and cooperative if you have minor children.
Nothing here should be construed as legal advice.
Dave Landry Jr. is a financial advisor and debt relief specialist who has consulted in the management of finances for several divorce settlements. He is also a contributor to financial service organizations dedicated to assisting those in debt crises.
Virginia L Colin, Ph.D. is a Professional Family Mediator certified by the Virginia Supreme Court. She is not an attorney or a therapist.
