We consult with people every day who are uncertain about their financial futures because they are faced with the unknowns of a divorce or separation. There are some key things to think about when you are faced with dividing your financials. At McGill Law, we offer in-depth consultations to assess your unique situation because it’s important to have guidance and advocacy when faced with so many issues. In the meantime, here are just a few tips to think about:
Bank Accounts:
Most couples have joint bank accounts. A good starting place is to make a comprehensive list of all cash/bank accounts. Closing any joint accounts or assigning these to one spouse should be a priority. Regardless of which you choose, make sure you have received your equitable share of the funds therein. An equal division is likely what a court would order. If one of you is taking the account, you will likely need to go to the bank and complete whatever documents are necessary to transform the account into an individual one. Many of our clients do not have their own individual accounts. If you don’t have one, it is a good idea to open your own as soon as possible in order to establish financial independence.
Retirement/Investment Accounts & taxes:
These assets are not all equal. It’s important to know the differences among your retirement/investment accounts because they carry different tax consequences. Having this knowledge is key to ensuring an equitable division. For instance, with some accounts, like a Roth IRA, contributions have been made on a “post-tax” basis. This means taxes have been paid up front, contributions were not deducted from annual income and when you reach retirement age, the earnings and contributions may be withdrawn tax-free. This is an advantage to the recipient in a divorce or separation. Transferring IRA assets is also relatively easier in that they are transferred “incident to divorce” pursuant to the terms of a divorce decree. Other accounts, such as a 401(k) or a 403(b) employer-sponsored defined contribution plan, require an additional court order after your final decree is entered. This order is called a Qualified Domestic Relations Order which specifically dictates how and the amount of funds to be separated from the participant/spouse’s account and allocated to the other spouse/payee’s newly created account. When the funds are transferred and deposited into the newly created account, there is no tax liability. However, when the recipient withdraws the funds, there is a tax consequence. Realizing actual value and planning for the division of investment accounts is fundamental for future financial success.
Credit Card Debt and Personal Loans:
We routinely ask our clients to retrieve credit reports to aid in a thorough search of all debt shared with your spouse during the marriage. This report is helpful and will reveal all credit cards, personal and car loans.
You have three choices for handling such debt: pay them off now, pay them off later or do nothing. The most efficient option might be to pay the debt off right away, which means you can close the account as soon as possible. This option protects your credit score in the event your spouse might neglect to pay the bill or go on a spending spree. If you choose to pay the debt later, make sure you are specific with those terms regarding time and who is responsible as you will want these terms in your decree. If you do nothing, you are likely not in agreement in which case a judge will dictate who will be responsible. This last option is always a last resort in the event you and your spouse cannot come to agreement on satisfaction of the debt.
Your Home:
Many people erroneously think their mortgage lender will allow them to simply remove one spouse from a mortgage when getting separated or divorced. Most of the time, to get the loan in one spouse’s name only, a refinance is required. Occasionally, your lender will allow a loan assignment or assumption. Find out if either of these is an option for you. In the event you must refinance, you are likely facing a much higher, less attractive interest rate which might negate your ability to qualify for a loan especially if you are unemployed or cannot show a history of at least 6 months of consistent income. If you cannot get approved for a loan, the most viable option might be selling the home and dividing the net proceeds. Occasionally, spouses choose to co-own a house, which is more complicated for many reasons since this necessitates carrying a large financial burden with your ex as well as facing many unknown, future costs. Whatever your home plan is, take the time to consider the most financially sound path for you and your spouse.
Enlist Professional Help:
Your team at McGill Law is ready to guide you in planning for a successful and equitable division of your assets and debts. Your matter is unique, and we will work hard to generate the best options for you and your family. If we don’t have the answer, we will put you in the hands of the most qualified experts. We work with only the best certified divorce financial analysts, mortgage brokers and business valuators. Give us a call in the Omaha or Lincoln areas to schedule your consultation today at 402-548-5418.