Making a Financial Plan for the Divorce Process

When people in North Carolina get a divorce, they might make some financial missteps that result in the process being more difficult and expensive. For example, some people go out and spend a lot of money. This feels good in the short term, but the bills will eventually be due.

Paying those bills or other bills by selling assets could also be a mistake if the sale will result in taxes. People should also be careful about taxes associated with a distribution from a 401(k). If there must be a distribution because the account has to be split as part of the divorce settlement, the couple will need a document called a qualified domestic relations order, and the distribution will need to be rolled into an IRA. These steps will prevent taxes and penalties.

Starting with divorces that are finalized after the end of 2018, alimony will no longer be tax-deductible for the payer. This means that the person who receives alimony will no longer have to pay taxes on it either, but it is anticipated that this will mean less money for both people. Some people make the mistake of quitting a job to avoid alimony, but this is not a long-term solution. Making a financial plan may help people avoid this and similar errors such as keeping a home they cannot afford.

A financial plan may guide a person through the divorce process in other ways as well. Negotiating property division can be emotional, and people may be tempted to rush through the process to get it over with quickly or because they feel guilty about the divorce. The financial plan can set guideposts that a person might discuss with an attorney to prepare for negotiations and give the person an idea of what elements of property division can be compromised on and which ones cannot.

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