Working Toward a Good Settlement of Your Divorce
Just because a couple is divorcing does not mean they cannot work together to achieve the best financial settlement. In a divorce settlement, both spouses should remember that:
- The common foe is not each other, but the Internal Revenue Service. Working together (and with a divorce financial planner or tax accountant) they can minimize the total taxes paid individually and jointly, both during the separation and after the divorce. They can share the money they save. Both spouses are liable for taxes due as a result of audits on joint returns, so it’s usually in each spouse’s best interest to work together.
- Tax consequences should always be considered. After the divorce is final, a party may get taxed on the marital assets received through a settlement. A 50-50 split may sound good, but the only way to know is to determine the value of the investments on an after-tax basis, and then decide. A tax professional can advise about the impact of any proposed property division before the fact.
- Failure to evaluate settlement proposals may have impact years down the road. Assets, incomes, living expenses, inflation, alimony, child support, taxes, retirement plans, investments, medical expenses and health insurance costs, and child-related expenses such as education – all must be considered.
- Calling a lawyer, even for a few minutes, costs money. Lawyers are not priests, rabbis or ministers, nor are they philosophers. There are cheaper places to find a sympathetic ear than the lawyer. No lawyer can represent both sides of a divorce at the same time. A spouse’s attorney is being paid to watch out for that spouse’s interests.
- A settlement offer than looks too good probably is too good. A family law attorney can review a settlement offer and make sure the client’s rights are fully protected, but any settlement that does not give one spouse enough money to live on is likely to go into default in the future. Both spouses and children will make compromises in their life styles after a divorce.
- Inflation has long-term effects.The effects of inflation on the cost of a child's college education, or on retirement, 15 years in the future can be dramatic. The “Rule of 72” is a simple way to judge the impact of inflation. For example, if the inflation rate is 3%, the “Rule of 72” means that prices will double in 24 years (72/3=24). College costs at 5% inflation will double in 14.4 years (72/5=14.4). Be sure to work inflation into the settlement negotiations to cover the true costs of future financial expenses. College tuitions should be negotiated even if the children are miles from going. College can be too much for any parent to pay for alone, so be sure to include this in negotiations.
- A spouse may be eligible for a partner’s Social Security. If a couple is married for 10 years or longer, a non-working or lower-earning spouse is entitled to derivative social security benefits on the higher earning spouse’s (“worker spouse”) record. These derivative benefits do not impact or lower the worker spouse’s social security payments. It is ironic that the average length of marriage for people who get divorced is about nine and a half years. Waiting just another six months may guarantee increased retirement options with no reduction in payments.
- Estate documents must be updated. After divorce, many people forget to change the beneficiaries on their life insurance policies, IRAs, and will(s), so the estates they wanted to leave to their children, new partner, or favorite charity may go instead to their ex-spouse. A family lawyer can guide a party about changes in any estate documents.
- Settlements can be insured. An ex-spouse’s premature death or disability can be devastating and may result in a loss of alimony, child support, college tuition, or property settlement payments. Life and disability insurance policies can guarantee that these payments will continue despite an unexpected loss or injury.
- A post-divorce financial plan is a must. One indisputable fact of divorce is that two households cost more to operate than one. Many divorcing spouses fail to realize that their divorce settlement must last a significant amount of time: perhaps even the rest of their lives. Financial planning can help people transition from a married to single lifestyle by prioritizing financial goals, developing realistic expectations, and producing sound plans for the assignment and division of financial resources.
Useful Online Tools
Separation Agreement Software
Separation Agreement Software
It is very difficult to move on with your life without getting the facts in writing, like, who gets what property and who is responsible for what debt, so a separation agreement outlines the rules in a legally binding format. Once you have a signed separation agreement you are on the right path to successfully negotiating your divorce settlement.
||Fairshare Divorce for Women
Fair Share Divorce for Women is the first book that gives women the support and guidance they need to safeguard their marital assets. Too often women find themselves at a disadvantage when their marriage ends and they have to fight for what is rightfully theirs.
Kathleen Miller, CFP, MBA
Resources & Tools
DIVORCE AND COLLEGE --
Divorcing spouses should consider the terms and conditions of any college expenses, including out of pocket expenses. Both parents and children are better served when this is decided at the time of the initial settlement agreement, even if the children are very young.
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So you and your spouse have a few issues to iron out before you can agree on your divorce? You are not alone, but you do not have to spend thousands on a lawyer to reach an agreement. With just a little participation and communication, you will be surprised how easy it is to resolve your disputes through our innovative Divorce Negotiation CenterTM. It's FREE. Give it a try.
Basic Principles of Law for Construing Separation Agreements