1. Failing to have an institution to institution transfer of retirement funds and therefore having to pay taxes on those funds. Do you know how to correctly transfer funds to avoid taxes?
2. Not knowing when you can withdraw retirement funds from a retirement account without paying a 10% penalty if you are younger than age 59 1/2. Attorney fees are not the only costs of divorce. Financial missteps during divorce can easily overshadow the known costs.
3. * UPDATE* Not knowing that the new “Tax Cuts and Jobs Act” (TCJA) has eliminated the tax deduction for alimony. Effective January 1, 2019, the payor spouse will no longer be able to deduct alimony, and the recipient spouse will no longer have to pay taxes on their alimony. In order to be out-of-pocket for the same amount as before the TCJA, the payor would have to deduct the tax savings they will no longer receive; although the recipient would be receiving a lower amount, alimony income would not be taxable. Talk to your financial advisor to understand how much alimony you really need to pay your bills each month if you’re the recipient, and how much you can afford to pay if you’re the payor.
4. Failing to have tax credits/refunds or capital gains/losses carried forward as divisible assets listed in the MDA. Did you forget about those assets? You may unintentionally give your ex-spouse a parting gift. Paying attention to details is vital during divorce.
5. Not deducting your attorney fees that are attributable to receiving alimony or retirement funds, if you qualify. Do you know if you qualify? This information can potentially save you thousands of dollars.
Consult your tax advisor concerning the information addressed above to ensure that it applies to your unique situation.
Sandy Arons, CDFA™, CDFS is the founder of Arons & Associates Divorce Financial Planning, where they specialize in the financial and tax issues of divorce. She encourages you to educate yourself so you can make informed choices,
and to take the time to understand the numbers before you sign the final divorce paperwork. www.getasmartdivorce.com