Financial steps to take when going through a divorce
Wisconsin residents who are about to embark on a divorce may not realize how many financial considerations need to be taken into account in the family law proceedings. Wisconsin is a community property state, meaning that assets acquired during marriage must be equally divided between divorcing spouses. These assets may include income that is not yet in liquid form, such as an IRA or a retirement account. A transfer of retirement funds from one spouse to another could result in unfavorable consequences if not done correctly.
Spouses may use a Qualified Domestic Relations Order to transfer a portion of IRA and other plans to another party without facing negative tax consequences. Individuals may also need to revisit retirement plans and life insurance policies to change the beneficiary designation, and they may also need to change the calculations previously made in their retirement planning.
Another tax consideration presents itself when property is transferred from one spouse to the other. Parties to a divorce should consider their estimated future marginal tax rates as they will stand after a property division is effectuated, since one spouse may have a higher capital gains tax on a future disposition than the other. In addition to separating community property, spouses will also need to separate their finances and the money they hold in joint accounts. Parties should be careful to close all joint accounts and to open separate accounts in order to establish their own line of credit. Parties should also rewrite a mortgage in the sole name of the party who keeps the home.
An attorney may help individuals assess their business cash flow and their personal budget. Individuals may also want to review their estate planning documents and consider them as they relate to a property settlement. Family law attorneys may help individuals conduct discovery to uncover the assets that should be taken into account when negotiating a settlement.
Source: Dentistry IQ, “Important considerations for the couple going through a divorce: Part 2“, Theodore C. Schumann, May 18, 2014
