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Financial matters not to overlook in divorce

Most divorcing couples in Texas become much more aware of their finances at some point during the proceedings, but there are a few things that people are likely to overlook. It is important, for example, during property division discussions, to keep an eye on joint liabilities, to examine cash flow needs and to be aware of past and future taxes. Each joint liability should be addressed individually prior to the finalization of the divorce. Joint credit cards should be cancelled, with balances transferred to individual cards if necessary. Mortgages should be refinanced. Creditors are not obligated to honor the terms of the property settlement and so any joint liability should be paid off or transferred to one or the other spouse.

Cash flow can be especially important if one of the spouses does not work. In such a case, liquid assets may be more valuable than non-liquid assets. Assets like mutual funds, stocks and bonds are more liquid than land, for example, and most retirement accounts. Roth accounts may be better than traditional retirement accounts because they are not subject to the same withdrawal penalties.

Divorcing couples should review tax returns for potential tax items that will allow for reduced taxes in future years. For example, if the couple was running a business and had sufficient losses in recent years, those losses may be carried forward and offset future income after the divorce. Tax considerations are also important in dividing retirement accounts and real estate. The use of a qualified domestic relations order will be necessary to transfer all or part of an employer-provided retirement plan.

Each couple's financial situation is unique, and an issue that is uncomplicated in one case may require significant attention in another. A divorce attorney can assist a client with an examination of assets and liabilities during property division negotiations.

Source: Market Watch, "Divorce? The 6 worst money mistakes", Leslie Thompson, September 23, 2014

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