During the divorce settlement process, spouses must make important decisions while negotiating a variety of issues related to divorce. It needs to be noted that a considerable part of their time is spent on assets such as the home, the retirement account, and other physical property. Nonetheless, during these negotiations, partners may overlook or forget critical matters.
Take a look at these other significant aspects.
Child’s College Options
It is common for a married couple to put money aside for their child’s education. They do so by putting money into a 529 plan, which is a tax-advantaged account for education savings. When a divorce is underway, the accounts for the children’s plans do not appear to be a marital asset to be divided. If such an account (under a child’s name) has not been funded or acquired with marital money, or if the funds have not been used for other purposes, such as mortgage payments.
Divorcing couples should pause and consider these types of accounts. There are numerous reasons for this reflection. Parents seeking a divorce, for example, have no way of knowing how the court will handle a 529 college savings plan. Although the funds in these accounts belong to the parents, they are set aside for the child’s future. Because the account owner is the parent, he or she has complete control over the account and can withdraw funds at any time. Furthermore, when children reach the age of 18, most divorce courts in the state do not require a parent to pay child support. In light of this, it is becoming increasingly important for parents to protect the marital funds set aside for college.
Capital Loss Carryforward
A capital loss carryforward is an “asset” that is often overlooked in divorce cases. Broadly speaking, capital loss carryforwards have significant value due to the future tax savings they provide to the taxpayer who can claim them. According to IRS rules, capital losses can be carried forward into subsequent years as needed. The processes continue until they are completely deducted. Capital loss carryovers are allocated in a divorce based on separate capital gain and loss calculations. These carryover allocations are for each spouse separately. The carryovers are divided equally if the losses are incurred jointly.
The Stock Options
Stocks are a potentially valuable asset that should be taken into account during the divorce process. If one spouse is unaware of the existence of stock options held by the other, he or she must obtain a complete picture of the situation. When a significant portion of stock option plans explicitly prohibit the transfer of rights in the options, dividing stocks in a divorce is a challenging task.
Another thing to think about in your divorce agreement is retirement accounts. This can be an area where you want to make sure that both of you are on the same page, so it’s best if you sit down and talk about it before you sign anything.
This is because if you’re separating, it’s likely that you will have access to each other’s retirement accounts. If this is the case, then you should have a plan for how to divide up your money once you’re no longer married. You can consider having a joint account that both of you can access at any time and splitting the profits from those funds evenly or in whatever manner works best for you.
In order for this to work out well for everyone involved, it’s important that both parties understand what they’re giving up when they sign a divorce agreement and agree on how they want things handled with their retirement accounts.
Tax returns are one of the most important things in your divorce agreement because they determine how much money each person gets from their ex-spouse’s income after taxes are taken out. If you don’t have a prenuptial agreement, then this will be determined by what state or country you live in and how much alimony or child support each spouse would receive if they were single parents with no income from another source (like retirement benefits).
So, you should know how much money the other person will owe you, and what the rules are for how this money should be split up. You may also want to include clauses allowing you to take advantage of certain tax breaks that are available only if certain conditions are met.
Debts & Liabilities
If you own assets and have liabilities, they will be divided according to their value. However, this is not so simple. In some cases, one spouse may be responsible for paying off the other’s debts before being granted any assets. In other cases, both spouses are responsible for paying off the other’s debts before being granted any assets.
It’s important that you discuss this issue with a professional accountant before making a decision, as it can affect your ability to receive spousal support if needed later on down the road after divorce proceedings have concluded.
A Word From Miod and Company
When you’re going through a divorce, you’ll need to put your assets in order. You should never overlook any asset that could be helpful to your case or help you manage the divorce process. You can safeguard your finances in the long run by taking the time to think about the assets and liabilities mentioned in this article.
Consult the financial experts at Miod and Company if you have any questions about the factors that are frequently neglected in divorce agreements or estate planning. Our Certified Public Accountants (CPAs) can navigate you through divorce agreements that cover every possible problem. Schedule a free consultation to find out how we can help.
image credits: Karolina Grabowska