Financial decisions can be a source of conflict with a spouse even during the best of times, but managing your financial affairs and making financial decisions during a divorce can be far more complicated. Some of the complicated decisions you may face include income tax filing status, decisions involving management of a business, handling contributions to retirement plans, and other assets. Many people make critical financial mistakes during a pending divorce including the following:
Mixing Up Equitable Division of Assets with Equal Division: An equitable division of assets means a “fair” but not necessarily equal division of marital assets. When allocating assets to each party, it is essential to understand that assets may not be equal in value even if they are currently comparable in value. For example, the family home may be comparable in value to stock in an emerging mobile communication technology company. Because of the lackluster Florida housing market, the future prospects for the value of the family residence may be far less promising than the stock in the emerging business. Some assets also are basically fixed in value and unlikely to appreciate so it is important to consider the prospect of future appreciation in value of an asset when negotiating property division in a West Palm Beach divorce.
Assuming Possession of the Family Home by the “Primary Residential Parent”: While the notion of primary residential parent is somewhat outdated under Florida law, the term is used here in an informal way to refer to a parent with whom it is determined the children will spend more residential time. The reality for many couples facing divorce is there is simply not enough available income or resources to avoid listing the home for sale. An experienced West Palm Beach divorce attorney can assist you in identifying viable options for keeping the family home.
Not Preparing a Qualified Domestic Relations Order (QDRO): A QDRO is a document that specifies how a pension plan or 401K is to be divided between an employee spouse and a non-employee spouse. While the actual division of the pension benefits may not be paid out until long after the divorce is over, it is important to prepare the QDRO and serve it on the plan administrator. The QDRO directs the plan administrator on how to divide the benefits so that the non-employee spouse gets paid his or her share of the pension benefits. If the QDRO is not in place, there is a risk the entire amount of the plan proceeds may be paid to the employee spouse.
Not Providing Contingency Plans for Alimony and Child Support: Financial support in the form of alimony or child support can be a critical financial resource to rebuilding one’s life following a divorce. Sometimes medical conditions or accidents can interfere with payment of such obligations, but disability insurance and life insurance policies may provide a way to fill the void and secure future payments.
Failing to Consider Tax Implications: Many transactions carry significant tax consequences while other transactions have no or nominal tax impact. It is important to consider the tax impact of a transaction when determining the value of a particular distribution of property. Sometimes the tax consequences can radically impact the equity of a particular division of assets.
These are just some of the common financial mistakes often made in divorce cases in West Palm Beach and the surrounding areas of Florida. If you are considering retaining an experienced West Palm Beach divorce attorney and have questions about financial issues, James S. Cunha and his legal team may be able to help.