So, the papers have all been signed and the judge's order has been duly entered - you are officially divorced. Unless you mind certain money and legal matters, however, you can find yourself in hot water.
Even after a divorce or separation, you can encounter money problems stemming from your terminated relationship unless your agreement covers them. Such issues include joint debt obligations (like a mortgage or credit card balances), future support and the even the division of property.
A recent article in the The Huffington Post, titled “Divorce and Money,” advises that you pay heed to the counsel of your divorce attorney regarding applicable state laws. Details matter.
The division of property in a divorce is typically not taxable to either party. On the other hand, if one spouse opts for monthly maintenance (also known as alimony) in lieu of part of the marital property, then he or she might be in for a surprise on April 15.
Maintenance paid pursuant to an enforceable court decree is taxed as ordinary income to the recipient and deductible by the party paying.
The party receiving the maintenance checks also must make quarterly estimated federal and state tax payments. Plan accordingly.
The only real tax issue associated with child support is which parent gets to claim them as dependents at tax time. However, as you can imagine, these financial decisions for the children carry the potential for some problems down the road.
Usually the parties agree as to college funding responsibilities. Yet, when college tuition needs to be paid, the parent who had the deeper pockets just might have a new family and new responsibilities. One option to avoid this headache is to set up a 529 college savings plan now.
Many divorce agreements include life insurance to fund future promises of payments like maintenance and child support. The spouse receiving the death benefit should be the owner and beneficiary of the policy with the ex-spouse making the premium payments. Without this arrangement, an angry ex could change the beneficiary on that policy.
As much as you likely have had your fill of attorneys (and legal fees?), there is one more attorney you need to see.
Your estate planning attorney.
That is right. As soon as the judge's gavel closes the divorce proceedings, you should be calling your estate planning attorney to create a new estate plan.
This new plan should include a will (and perhaps a revocable living trust), financial power of attorney and an advance health care directive.
While the surviving biological parent will be the guardian over shared minor children, that does not necessarily mean your ex-spouse need manage the inheritance you leave for them. However, you must carefully make plans to avoid this default.
Remember to check those beneficiary designations on all life insurance policies and retirement plans? Change them as needed given your recent "change in circumstances". If you do not do so, then your ex just may have an unexpected payday someday.
It is not easy getting divorced. When it is all over in the courtroom, you will need to rebuild your life outside of it. Your estate planning attorney will take you through a discussion of your options.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: The Huffington Post (March 18, 2015) “Divorce and Money”