Financial Considerations When Negotiating Post-Divorce Income and the Division of Assets | Allan Brandon Tise PLLC, Attorney at Law
November 14, 2017
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Needs change over the years, which is one good reason to consider your future when negotiating an equitable divorce settlement. Children approach college age, the cost of living rises and retirement grows closer. Therefore, unless you want to find yourself in serious financial trouble later on down the road, it's important to consider how the financial decisions you make during your divorce may affect you later.
Division of Assets
When it comes to dividing assets, couples often fail to consider all the ramifications involving the division of liquid and non-liquid assets when negotiating a divorce settlement. For instance, getting the house - regardless of how much it's worth - doesn't put you in a better financial position if you can't afford the upkeep or won't have adequate income during your retirement years.
Both parties in a divorce need to walk away with a share of liquid assets such as bank accounts, money market accounts, stocks, bonds and pension plans or retirement accounts that are considered marital property.
Other assets you own, including real estate, vehicles and collectibles, are examples of non-liquid assets that can't be converted to cash as readily. Their value may either appreciate or depreciate in time.
Retirement Accounts
If your divorce settlement includes a retirement account divided by a qualified domestic relations order (QDRO), you won't have to pay taxes on the distribution from your ex-spouse's retirement plan until you start withdrawing funds. However, you must transfer the money directly into your own IRA account or another qualified retirement plan.
If you keep some of the money to give yourself a better financial start in your new life and then transfer the balance to an IRA in your name, you must pay taxes on the money you keep. Unless you have the eligible rollover distribution you receive from your ex-spouse's plan deposited directly into a qualified retirement account you own, you will owe the IRS a 20 percent mandatory withholding tax on the amount.
Should you transfer the full distribution you receive to your own account, but then withdraw money early or before age 59 and a half, it's considered an early distribution on which you are required to pay a 10 percent penalty tax. Another factor to keep in mind is that the 10 percent penalty doesn't qualify as an above-the-line deduction on your federal income tax return.
Alimony and Child Support
If you negotiate alimony, keep in mind that while the person paying the alimony can get a tax deduction, the party at the receiving end must include the payments as income on his or her tax returns. On the other hand, child support is not tax-deductible, nor does the custodial parent need to claim the payments as taxable income.
Another consideration is who gets to claim the dependent exemptions for children. Generally, the custodial parent claims the exemptions, but you and your ex-spouse can decide to let the other parent claim the exemptions.
In some cases, the divorce decree specifies which parent can take the exemptions. Some parents rotate years so that each has opportunities to benefit from reduced taxable income. However, the parent who claims the exemptions each year must file Form 8332 with his or her tax return.
Life Insurance
If settlement negotiations include your ex-spouse taking out a life insurance policy to insure the alimony payments, make sure you are named the irrevocable beneficiary of the policy. Otherwise, the policy can be canceled if your ex-spouse stops making the payments. However, as the irrevocable beneficiary, the insurance company is obligated to notify you if the premiums are not paid.
If you are counting on child support to help meet the financial needs of raising your children, it's important to include a life insurance provision in the divorce settlement. The purpose of life insurance is to make certain that your ex-spouse's financial obligations to your minor children are met should he or she die before they are grown.
If you have any questions about the division of marital assets, the team of Allan Brandon Tise PLLC, Attorney at Law can help you get a fair settlement.
Allan Brandon Tise, PLLC, offers expert child custody law services in Wilmington, NC. Protect your parental rights today; call us at (910) 251-9614.
Struggling with child custody law in Wilmington, NC? Learn your rights and how a child custody attorney can help. Contact us today at (910) 251-9614!
Looking for a dedicated Child Custody Attorney in Wilmington, NC? Allan Brandon Tise PLLC provides expert family law services to protect your rights.
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