As a married couple, unless you had a well-crafted premarital agreement, you and your spouse jointly accumulated assets and debts that will be divided between you when the divorce is finalized. There are various financial issues to consider for this transition, most of which require you to take some affirmative steps to protect your interests and minimize unintended costs. With most of these steps, your family law attorney can help you to review your options and make referrals to other professionals who can advise you on best practices to suit your individual needs.
Dividing Up Accounts
If you and your spouse held assets jointly, you will need to set up new accounts to hold these assets at the time of your divorce. This includes banking and investment accounts. You also need to divide up debts like your joint credit cards, mortgage and any other loans. There are many ways that both assets and debts can be allocated, so it helps to think through your future financial needs and resources when negotiating the division. When setting up new accounts, you should consider working with a financial planner to help make decisions about how to manage your changed situation.
Paying Taxes
Whether you chose to file your taxes jointly or separately, in a divorce, you will need to pay attention to the timing of the divorce and sale of assets to make sure that you are accounting for your fair share of the taxes. The IRS expects each individual to file their taxes according to their marital status on December 31, so if you had planned to take advantage of one last year of tax savings by filing jointly, make sure to time your divorce properly. If you and your spouse own a home or other assets that are sold as part of the division of the estate, there may be capital gains or losses to report on your tax return. For couples with complex finances, including an accountant in your team of divorce professionals is essential to a fair plan.
Retirement and Education Savings Plans
IRAs, 401ks, 529s – people set up a variety of different accounts that include some form of tax savings, and those savings are typically joint property of a married couple. Unlike other types of accounts, when changing ownership of retirement assets and allocating these accounts, you need to obtain a Qualified Domestic Relations Order (QDRO) to prevent any penalties or taxation when rolling these savings into an individual account. Education savings plans can remain in the same account, however only one parent can be the custodian, and you should give some thought to limiting what actions that parent can take without notice and consent of the other parent. Your family law attorney will help you with obtaining the QDRO and including important provisions in your divorce decree.
Estate Planning
Whether a married couple has put together an estate plan or not, separation and divorce change many rights and responsibilities associated with death and disability. If wills, trusts and powers of attorney have been drawn up, it is likely that couples have designated one another with significant authority and benefits that they will want to change to reflect their new circumstances. Some joint documents like a marital trust may involve multiple steps to revise or dissolve. To be certain that your estate and person are treated the way you want, you should consider consulting with an estate planning attorney as part of your separation and divorce process.
Getting a divorce is a major transition on many levels. The change in your finances doesn’t always occur automatically, and it’s important to review your entire situation to make decisions that best suit your specific needs. With a skilled family law attorney as the lead of your team, you can work with professionals to make sure you are getting off to the right start.
The Law Offices of Lloyd A. Malech is located in downtown Bethesda, Maryland. For more than 25 years, Mr. Malech has provided aggressive and effective representation for his clients in Maryland and the District of Columbia. He has been honored with the Lawyers of Distinction Award Recognizing Excellence in the Area of Divorce and Family Law for the past three consecutive years and has just been recognized as a Family Law Top 10 Attorney for 2021 by “Attorney and Practice Magazine.” Visit Malechlaw.com or call (202) 441-2107.