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Giving You the Option to Choose is Always a Good Thing - Creating Scenarios for an Equitable Distribution
Ask anyone who has gone through the college acceptance period of their life... having the option to choose which college they were going to attend was always a luxury to strive for. The same holds true when settling on an equitable distribution in a divorce.
Aside from trying to avoid going to trial, which 94% of divorcing couples manage to do, couples should strive to create a number of scenarios from which they can choose from so both parties walk away feeling somewhat satisfied. What may be important to one party, may have no value to the other so it is important to divide the assets such that each party has as much of what is important to them as possible. This mutual respect in dividing the assets will pave the way to less defensive and militant reactions on some of the larger ticket items.
Creating these scenarios and seeing the respective graphs & charts, giving a visual of each party’s financial health, often diminishes the fears of the unknown. It also protects those who state that they only want the marital home, forgoing any liquid and investable assets, from setting themselves up for the financial challenges of being house poor and possibly not having enough to ever retire.
Be aware... some assets are not what they seem. For instance, monies held in a retirement account should not be distributed dollar for dollar unless there is no need to liquidate it until retirement. There are costly tax consequences, often including additional penalties, for retirement accounts that are liquidated prematurely. Also, liquidating assets that have enjoyed a large capital gain will also cost you at tax time. It is important to decipher which investments will carry along higher tax consequences.
As a CPA and a CDFA (Certified Divorce Financial Advisor), I have often saved my clients from a financial tsunami at tax time by identifying those assets and protecting them from making these very mistakes.
When approaching this task of creating various scenarios, it is advisable to get a neutral third party to assist. Life earnings and large ticket sentimental items can often stir up emotions which can often lead the mission of equitable and fair distribution astray.
When dividing up your tangible assets, it is advisable to set aside items that were purchased “for the kids” but enjoyed by all, ie. sports memorabilia, play station devices, ping pong table, etc.... and let them know these will remain theirs and they can choose which home they will keep these in. This will give them ownership and send the message that their “things” are respected as it relates to them.
Once their items are set aside, make a list of the items of most importance. Perhaps agree to keep the rooms in tact for familiarity for the kids regardless of what home they are in. Having all the furniture and decorations from the family room remain in tact in the new home may offer some comfort as they adjust to the new family dynamics. Make every effort to focus on the big picture and not fight over “things”. As mentioned in the last piece of this series, children will watch and later mimic your behavior as you move through this process. Give them the gift of good, integrity filled characteristics to mimic.
If the divorce is being filed under one of the seven fault grounds (including extreme cruelty, adultery, abandonment, substance or alcohol addiction, institutionalization, deviant sexual conduct and incarceration), the 18 month separation period, required for a no-fault divorce, is waived. However, each ground for divorce has its own stipulations.
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