Filing for divorce, even in the best circumstances, isn’t pleasant. It can be messy and involve hurt, anger, and many other emotions.
While some couples let their emotions guide the way, these individuals usually have a longer and more expensive divorce than those who remain calm and are prepared. When dividing assets, some mistakes are made by couples who aren’t thinking clearly or focusing on the process. Knowing what these mistakes are can help you avoid them.
Look at the true and long-term value of an asset
On the surface, some assets may seem equal. However, after factoring in the taxes, this will likely change.
For example, having $5,000 in cash differs from having stock valued at $5,000. When you sell the stock, there’s a tax impact. The profit you make is taxed as a short-or long-term capital gain (depending on whether you had it for under or over a year).
While assets may seem equal now, be sure to look five or even ten years down the road. There’s a good chance one asset will be worth more than the other at this point.
For retirement accounts, your spouse may be entitled to receive a portion of it. The way you split it matters. For example, if you take money out of your 401(k), it will be taxed. Also, if you are under 59.5 years old, there’s a 10% penalty for early withdrawal (in some cases). To protect yourself from these costs, a qualified domestic relations order (QDRO) is often needed.
Protecting your right to a fair divorce settlement
Knowing the mistakes some people make with asset division when divorcing can help you avoid them. It’s also wise to seek additional advice and guidance through this process to ensure you get an equitable divorce settlement.