Issues of Finance during Divorce

Managing the financial aspects of a divorce can be complex at best and disastrous at worst, for one or both litigants. The first step is obvious – any party to a divorce must understand the specific laws of the state in which he/she lives. Consulting an arbiter or attorney will probably be necessary in order to understand what the law allows and prohibits. The usual financial concerns will involve division of assets (accumulated cash, savings, investments and property) and division of debt (credit cards, mortgages, loans, etc.). If both parties can reach amicable agreements on the division of both assets and debt, the issues become far less complex, however, this division should be carefully considered to be certain that it is equitable.

Important Steps in Division of Assets and Debt

1. Add up the marital assets. These may include home(s), cars, furniture, savings, investments, IRA’s, pensions and retirement plans, special items such as antiques, jewelry, collections, etc. If agreement can be reached on the equitable division of these, the divorce will proceed much more smoothly. If not, an arbiter may need to become involved. If there is still disagreement, then assets may have to be liquidated and the proceeds divided between both parties.
2. Identify all debt. Determine who will be responsible for each of the debts. If the debts are in joint names, steps will need to be taken for one party to assume this debt on his/her own. The cleanest method is to pay off all debt, if there are enough assets to do so. In this way, both parties can become debt free and not have the concern about the other party not meeting his/her obligations. The most vulnerable position is for debt to remain in both names, as one party may not meet his/her obligations, and the other remains legally responsible.

Don’t Forget About Taxes

It is important to understand all of the tax issues related to divorce. Issues such as who will claim children as dependents and the tax deductibility of child support and maintenance need to be thoroughly researched and considered in the ultimate financial settlement of any divorce.

A Final Word

Divorce is filled with emotions, and, when people are under emotional stress, they often do not make reasoned, rational decisions. For this reason, it cannot be recommended strongly enough that, for his/her own protection and future financial well-being, a professional arbiter or attorney should be consulted. There is no end to the number of horror tales from ex-spouses who were placed in vulnerable or unequal positions due to lack of understanding or appropriate advice during the process.