Throughout our experience as Certified Divorce Financial Analysts we have developed a passion for strategic thinking during financial negotiations of divorce. Every case presents different challenges, opportunities and client goals. No two negotiations are the same but we find some financial strategies during divorce important to consider in every case.
Here are 10 strategies to help you during your divorce.
1. IRS rule 72(t)
This allows hardship withdrawals without the 10% penalty from 401(k) plans during divorce. Consider this strategy to help with cash flow problems during dissolution proceedings.
2. The Government Pension Offset and Windfall Elimination Provision
These are federal Social Security rules that often unexpectedly reduce Social Security retirement benefits in divorce situations and may cause inequity.
3. Consider that an apples to apples comparison may not be possible…
…for before tax and after tax dollars from an individual brokerage account versus an IRA. Agreeing to an equal offset of accounts with different tax ramifications may result in inequity.
4. Know the value
Comparing the present value of a currently available liquid asset such as a savings account versus the future value of a non liquid asset such as a pension may result in inequity.
5. Child contingency and Alimony recapture laws
These are hard to analyze and often missed in setting support awards but can cause unexpected tax ramifications of great magnitude if left without review.
6. Capital gains
Unrealized capital gains that may cause future taxes should be included in estimates of value when considering asset division. Agreeing to a division where each party receives an asset of equal value but one has a large capital gain built in will result in inequity.
7. Know what has cash value now
Dependency exemptions and tax filing status may have real cash value now and in the future and can be used as bargaining chips for financial settlements.
8. What about the life insurance?
Life insurance placed as security for support payments should be positioned before a final settlement is reached to ensure a policy will be available with an efficient cost structure.
9. Retirement plans
Qualified Domestic Relations Orders necessary to divide retirement plans should be drafted and approved by the plan administrator prior to the divorce being final to avoid delays common post divorce.
10. Don’t forget the real estate
Consider the advantages of deferring capital gains taxes on real estate assets by using a 1031 exchange or converting a rental property to a primary residence for tax purposes.
As your partner and with a little guidance from attorneys, we will help you reach an equitable solution. Call Wellspring Divorce Advisors today to begin the journey towards your future.