A divorce is one of the most emotionally draining and financially critical times in a woman’s life. Even more grueling is the need to make long-term financial decisions when you are emotionally vulnerable. It is critical to obtain advice from a west bend divorce attorney to discuss financial planning prior to divorce mediation. Here are the top 5 financial tips for women in divorce.
Value All Property Before Making Settlement Offers.
To avoid hurting their spouse or causing more conflict for their children, many women offer settlement options that are unrealistic because they have not even valued their property before making the offer. These offers are made in haste and include significant concessions such as, “I don’t want any of your pension” or even “You can keep the home.” However, not physically taking a pension, a 401(k) plan or the marital residence is very different from not including it in the property to be divided in your divorce. You must first obtain the value before making any kind of offer to your spouse. Once you know that your spouse has a $300,000 401(k) plan, you may not take any portion of it, but the value will still be included in the total property. Therefore, while your husband may keep the entire retirement plan, it could be offset by your keeping the marital residence of equal value. Even if you are willing to accept less than half of the property in the marriage, it is still critical to know what amount you’d be giving up if the division were not equal. Otherwise, you cannot make an informed decision.
Play Defense – Not Offense.
Paying attention to the number and value of your assets and writing them down is good defense. Playing defense would also include setting up alerts to be informed of any significant transfers. Playing offense would include removing 100% of the bank accounts to start new accounts in your name only to prevent that same behavior from your spouse. Unless your spouse’s behavior during the marriage (gambling, secrecy, addiction) would require an offensive move, it is better to play defense.
Consider the Value of Time.
Any experienced attorney, like a skilled Oshkosh divorce lawyer, will remind you of the value of time. For example, if you have a long marriage and your spouse makes significantly more, you will probably be discussing and negotiating alimony. Often, one party offers to buy the other party out instead of making monthly payments for years. A realistic buyout is not just adding up the amount of money that would have been paid over the years. Money paid up front is worth more than the same total amount of money paid over years because you could take the full amount and accrue interest right away. The best alternative would be to consider the present value of that monthly alimony income stream. If presented with a “present value” of an alimony income stream, or even the present value of a pension income stream (of monthly benefits to be paid in the future), it’s critical to find out what interest rate assumption was used. The higher interest rate, the lower the present value you will receive.
Prepare for the Long-Haul.
So many women want to just “get it over with” that they do not prepare for the long haul. Many people want liquid assets such as cash and bank accounts but fail to appreciate the importance of long term assets such as retirement. Most people work very hard for many years to accrue significant retirement assets. So, it’s understandable that a spouse would not want to divide those assets in divorce. But failing to include any retirement assets in your final property division leaves most women in an economically vulnerable position. Inappropriate financial settlement should include both short-term assets such as cash and bank accounts as well as long-term assets such as pension, real estate, and retirement.
Consider the Tax Aspects.
Most people want to claim the children as dependents and exemptions. But there are other significant tax considerations which follow claiming a child as a dependent. For example, a single divorced parent cannot claim a child tax credit if they have not also claimed that child as a dependent and exemption. In 2017, the child tax credit was $1000 but under the new Tax act of 2017, the credit will be increased to $2000 per child. When negotiating, this makes the value of claiming the children even more significant. In addition, for years, people who paid alimony to their ex-spouse were also allowed to deduct that from their income, which created significant tax savings. But the new tax law will eliminate the ability to deduct alimony for any marital settlement agreement signed after January 1, 2019. Whether participating in mediation or collaborative divorce, it’s critical to obtain current tax advice to make the best possible settlement.
Thanks to our friends and contributors from Derr & Villarreal, LLC for their insight into divorce and family law practice.