Column: Divorce planning thoughts
Submitted by editor on Tue, 08/11/2015 - 2:37pm
It is clear, getting divorced can be a time to consider some financial matters. If the house is sold before the divorce, the full $500,000 home sale gain exclusion rules can apply. Some folks are well advised to sell the home and both parties get new housing.
That can help reduce costs of insurance, property taxes and interest if there is a mortgage. Now that real estate prices are moving up again, you might be better off to sell the house.
Because divorce is so emotional, upsetting and expensive, it is easy to overlook doing some other financial actions. Be sure to update your Will (or Trust). If you have Power of Attorney forms for health care and financial matters, you may need to update those documents as well.
Beneficiary designations on retirement accounts, annuities, life insurance, etc. need to be reviewed and changed or corrected. If the divorce requires one party to maintain life insurance that names the other spouse as beneficiary, you could make sure that the premiums are being paid and the beneficiary designation is as agreed. One option might be to ask for confirmation from the insurance company every six months or so.
We sometimes see income taxes being misunderstood. If Joe says "I'll keep the cash in the bank, you get an equal amount in the retirement accounts" that is not be an equal division. The regular IRAs and most retirement accounts will have the future distributions subject to income tax. At least an estimate of that tax could be done so the retirement accounts are valued after a provision for the income tax.
If you have passwords for various accounts, you could change those to new passwords. If the retirement accounts are going to be divided, it is very important to get a qualified domestic relations order (QDRO) as part of the divorce agreement.
If there is a business involved, the value of the business needs to be established by a qualified business appraiser. That can take awhile to do correctly. If you could both agree on which business appraiser to use, that could save some fees. The important thing is to be sure the value of the business is appropriate. Then, consider the possible 'hidden' income tax that would apply if the business were sold.
Most attorneys are using the excel spreadsheets to list all assets and use columns for possible division for each party. That's good, but remember the possible tax impacts.
If your are both on record as responsible for credit cards or other loans, the agreement should clearly indicate who is going to pay off the debts. Then, you want verification from the lender or bank that you are removed from responsibility. That works great if the lender will accept just one of you, but sometimes that is not possible.
I've seen clients divorces over the years. Just expect there will be surprises.
Did you hear: "Those who Can, Teach. Those who can't, pass laws about teaching."
— John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for more than 45 years. He is founder emeritus of Bullis and Company CPAs.
