If you’re planning to get divorced this year, you might want to act fast. New tax laws will be taking effect soon.
What New Tax Laws Mean for Your Divorce
The Tax Cuts and Jobs Act will effect divorces that happen after December 31, 2018. Under this new law, a taxpayer will no longer be able to deduct the alimony payments that are made to an ex-spouse. And the alimony recipient will no longer pay taxes on that income.
At the beginning of 2018, it was predicted that this new law would cause a big rush on divorces, due to the fact that people would try to get the divorce in before the tax law went into effect. Turns out, that big rush hasn’t quite happened.
According to divorce attorney Malcolm Taub, of Davidoff Hutcher & Citron in New York, “It is a drastic change, but it seems like people are living with it.”
Despite the fact that people aren’t in as big a rush, these new tax laws will mean big changes to how your financial picture after divorce will look. As always, it’s advised to work with a divorce attorney that knows the new laws.
Financial Tips for Your Divorce
Finances can be hard to manage in general, but if you are going through a divorce, they can feel almost impossible. There are a number of things to consider: will you be receiving alimony or paying it? Child support? What will your “single life budget” be? You’ll want to address these questions as soon as possible. Below we offer some financial tips for your divorce.
Build a Team
“Don’t go it alone,” says Mike Lynch, vice president of strategic markets at Hartford Funds. “Build a team today – a qualified team of legal, tax and investment professionals. Maybe it’s your current investment professional, or you may seek a new one that understands your situation better.”
But not just a team of legal and financial professionals – you’ll also want to build a team of “emotional professionals,” such as friends or a therapist that can help you deal with any emotional pain that you are experiencing.
There are some additional things you can do to help your emotional well-being, including:
- Waking up and getting out of bed each morning
- Get yourself in the “moving forward” zone
- Eat well
- Get inspired
- Get perspective
- Do something that will propel you forward instead of just dwelling
These can feel very hard to do following divorce, but if you can place one foot in front of the other, and just try to keep moving forward, it can help a great deal in not feeling overwhelmed by the experience.
Be Civil When Dealing with Your Ex
When it comes to working out aspects of a divorce, including marital property division, alimony, and child custody and visitation, you’re going to want to at least try to be civil with your ex. This might mean working with a relationship therapist that will advise the both of you on how to find a common ground. At the very least, you need to find a way to communicate with each other without having it end in a shouting match. Sometimes email is the best – where people can state the facts. Texts can also work. If you feel comfortable talking with your ex, just remember to record your interactions and what was discussed. Senior vice president of David A. Noyes & Co., Linda M. Conti knows divorce first-hand. “My parents went through a bitter divorce,” she says. “They separated when I was 3 and the divorce was final when I was 6. I grew up living through ‘what not to do to your kids during a divorce.’ I wish someone could have counseled my parents better through all aspects of the divorce.” You have to remember that staying calm is the best way to resolve the financial aspects of a divorce.
Marital property division can be one of the most contentious aspects to be decided during a divorce. State laws govern how the marital property will be divided. You will need to check with an attorney to see if you live in an equitable distribution state or a community property state.
There are four other steps that need to be considered when diving marital property:
- Identify the assets owned by you and your spouse
- Categorize all assets as marital or non-marital property
- A value will need to be assigned to the assets
- Devise a plan for the division of assets that is in accordance with state laws
Consider Selling Shared Property
It’s always advised that you sell the primary home instead of having one spouse keep it. Retaining ownership of a home – or the question of who will retain ownership – can often lead to issues. Questions such as: who will take care of maintenance and who will take the utility bills need to be answered. It’s often advised that a couple sells their home and split the proceed of the sale. That way, both sides receive an equal amount.
When it comes to a secondary home, “It’s much more effective to sell the house and distribute the proceeds to the children,” says Ric Edelman, chairman and CEO of Edelman Financial Services. “You get into the issue of fights amongst the kids – issues of maintenance, repairs and upkeep.”
Work with a Divorce Financial Analyst
You might consider working with a divorce financial analyst that can help with your settlement by:
- Locating assets. This also includes hidden assets.
- Ensuring information about family finances is accurate and complete.
- Developing a long-term forecast of how your divorce will affect your finances when it comes to retirement needs, tax liabilities, and benefits.
- Developing a realistic household budget so that you know where you stand in terms of life insurance, health insurance, and cost-of-living increases.
- Appraising and/or valuing assets.
- Preparing financial affidavits that describe your financial and tax implications when it comes to various divorce settlement options.
- Mediating a financial agreement between you and your soon-to-be ex-spouse.
Update Your Beneficiaries and Your Will
Emily McBurney, attorney and qualified domestic relations orders (QDRO) expert, advises you update your beneficiary that is listed on your life insurance and retirement accounts. It might not make sense now if your primary beneficiary is your ex spouse.
“Review all of your accounts and insurance policies and change the beneficiaries. A divorce does not automatically terminate your former spouse’s rights to be the beneficiary on your retirement plans, bank accounts, and life insurance policies –- even though your divorce decree might say that your former spouse has waived all rights to the benefits,” says McBurney. “You will need to formally submit a change of beneficiary form to each financial institution. Otherwise, the benefit will be paid to whoever is listed on their forms at the time of your death — regardless of your divorce.”
You’ll also want to do this for your will.
According to certified divorce financial analyst Donna Cheswick, “Meet with an estate planning attorney to discuss your state’s laws regarding possible updates to your will, power of attorney and advanced directives. You want to be sure that your former spouse is no longer entitled to any distribution in the event of your death. And if your settlement agreement requires one party to maintain life insurance on the other, then there needs to be a method in place to be sure this is actually occurring. Just because the former spouse says they will do something, doesn’t mean that they are following through.”
Have a “Single” Financial Plan
When you were married, chances are you had a second income coming in to help with things like child care, the mortgage, and other utilities. You might now be receiving or paying spousal support or child support. You also may not be receiving any kind of support. Whatever your new financial picture is, you’ll need to know how to budget according to your new income amount. Putting this together before entering the divorce process will help you understand your needs following the divorce so you can come to a settlement that works.
Make sure you plan for college tuition, child care, children’s lessons, sports and activities, and your own retirement, taxes, transportation and housing. It’s hard to plan for the unknown future, but try to get an idea of what your 1 year, 5 year, and 10 year financial needs will be.
Considering your financial situation after your divorce can feel daunting and overwhelming, but if you take the right steps, you can be sure to set yourself up for financial freedom. It might take some tweaks but consider the fact that you are now completely in charge and able to make your own decisions regarding how your money will be spent. Embrace it, and embrace the freedom you now have.
A Family Law Attorney
When it comes to the actual legal process of a divorce, you’ll want to work with a skilled family law attorney There are a number of things that need to be considered during a divorce: child support, spousal support, marital property division, and other things. Working with a skilled attorney can help ensure you get a fair case. For advice on divorce, child custody determinations, setting up a co-parenting agreement, dividing marital property, and spousal support you need the expert law firm of Divorce Law LA. Schedule a consultation today.
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