An Illinois divorce is a major emotional experience, but it also has financial repercussions. As two individuals divorce, housing and other living costs typically increase. They must also deal with the division of their assets, which may impede both of their progress toward funding long-term goals, including covering the cost of their children's education or their retirement.
The division of assets is one area requiring careful attention during the divorce process. It is particularly important to consider the taxable status of an asset; for instance, a brokerage account of $100,000 may be more valuable as compared to a $100,000 retirement account that is tax deferred. For the brokerage account, one will simply pay tax on the capital gains or the dividends. Meanwhile, income tax must be paid on any withdrawals made from the retirement account. These are important factors to consider when dividing these types of assets.
It is also important to examine how decisions made during divorce may impact one's taxes in the future. For instance, while child support is not taxable, alimony received is treated as ordinary income by the IRS. This might change a person's tax preparations as well as the amount owed to the IRS.
The divorce process can understandably be complex and overwhelming, especially for those with high-value assets. In light of this, many people in Illinois have been turning to divorce mediation instead of divorce litigation. Mediation can be a less costly and faster way to reach a settlement when dealing with marital assets and property. However, if two people cannot mediate a divorce successfully, a judge will have to step in and make important financial decisions for them.
Source: Time, "Keep a Divorce From Killing Your Finances", Jill Schlesinger, March 1, 2016