Financial challenges associated with divorce can prove to be one of the most difficult aspects of separation for some couples. All soon to be divorced spouses will need to adjust their yearly income tax filing statuses, deductions and more; in addition, many will need to separate retirement accounts while minimizing taxes and/or penalties. All remaining marital property will need to be distributed; some assets, such as bank accounts, are easily valued, but in some situations, such as when a business is involved, valuation can be extremely tricky and may warrant hiring an expert to prevent misrepresentation of assets.
Some couples are so concerned about expenses which may be incurred during a divorce and/or how to proceed with the financial division of property that they remain in an unhappy marriage due to fear that they simply can’t maintain their lifestyle on their own. However, these fears are rarely justified particularly when a qualified attorney can help you navigate all aspects related to finances during and after a divorce.
Income Tax Filing Status, Deductions and Credits
If your divorce is not yet final as of December 31 (within the tax year), you and your spouse have the option to file as married or married-filing-separately. Once the divorce is final, you’ll need to change your status to single or head of household (if you paid more than half the expenses of your household and had a dependent in your care for more than half the year). The spouse acting as the custodial parent of any child involved will be eligible to claim the child as a dependent, although the non-custodial parent is legally allowed to claim them if the custodial parent formally agrees not to do so. Numerous tax credits and/or penalties may also come up, so make sure to discuss the details of your situation with a professional accountant and/or your divorce lawyer before filing your annual income tax return.
Separating Retirement Accounts
Any retirement accounts which were funded during the period of marriage are considered marital property. Many couples choose to split these accounts in their divorce decree; when done skillfully, taxes and penalties can be avoided and transfers can be rolled over into a new retirement account. Without proper planning, you could end up being taxed on distributions made to your spouse and will have to pay an early withdraw penalty if you have not reached retirement age. Portions of an individual retirement account (IRA) can be transferred to your spouse in a tax and penalty-free manner by including a carefully worded “Transfer Incident to Divorce” in the divorce agreement; qualified 403(b)s, including 401(k)s, can be distributed to your spouse in a similar manner with the help of a “Qualified Domestic Relations Order,” also known as a QDRO.
Valuation and Division of Business Property
Although all marital property must be valued prior to reaching an equitable divorce settlement, entrepreneurs running their own business face some of the greatest challenges in creating a fair divorce decree. The value of assets such as bank accounts, vehicles, and even houses can be easily calculated, but business assets are often abstract and can be extremely difficult to determine. If the business existed before the marriage but marital funds were used to grow or maintain the business, the spouse without a legal interest in the business will still be entitled to part of its value.
Different methods are used to calculate the value of a business and may or may not require the assistance of an expert such as a Certified Business Appraiser (CBA), an Accredited Senior Appraiser (ASA), or a Certified Public Accountant (CPA). Generally speaking, hiring an expert is warranted when the value of a business is anticipated to be significant. In some situations, experts from each side will disagree about the true value of the organization; in such cases, a judge will make a final decision based on testimony and evidence presented by these experts.
Claim the Life You Deserve
Fear-based decisions related to finances and expenses during and after a divorce has been known to keep people from moving on and claiming the life they truly deserve. If you and your spouse have grown apart and believe you would be happier living separate lives, it is important to realize that there are many ways to maintain your current lifestyle even after you have separated. Child and/or spousal support along with a fair distribution of marital property can protect all parties involved, but working with a professional legal team is critical to ensuring you are receiving your fair share of assets. A family law attorney will also be able to minimize any divorce related expenses by streamlining the process so that you can achieve an expedient resolution.
When you’re ready to take the next step, allow the Law Offices of Silky Sahnan to assist you in moving forward with certainty and confidence. We will work together to tackle your financial portfolio head-on to ensure an equitable divorce settlement for you and your family. Call us today at 888-228-1098 or contact us online to schedule a confidential consultation.