All of the changes that accompany divorce can seem overwhelming, and the last thing that many people feel like they are able to do is make future financial planning decisions. Everything seems to be in flux, with relationships and lifestyles changing. However, you need to make careful decisions when negotiating property division settlements because of the potential impact the settlements will have on your economic well-being in the years to come. You should ask yourself some key questions when considering property division negotiations to ensure that the settlements meet your needs.
What Are the Tax Implications of the Settlement?
You should consider two different types of taxes in property settlement discussions: capital gains and income. Different assets in a property settlement bring with them different tax obligations.
Someone who receives spousal support payments will have to pay income taxes on that money, and it sometimes wise to ask for a lump sum cash settlement instead. If you are awarded assets such as real estate or investment accounts you will need to consider the capital gains taxes that you may need to pay on those assets and where you will get the money to pay the taxes. These are just some of the tax issues to consider. You should consult with a good CPA to make sure your financial decisions are sound.
Who Keeps the House?
You should ask yourself several questions specifically about the house when negotiating a property settlement, as well. The first question to address is whether to keep the house. There are many practical reasons for wanting to keep a house, such as wanting to continue to raising children in the family home; or maybe the house has been in the family for several generations. However, purely emotional reasons for wanting the house should not drive you to do something that does not make sense financially.
The next question to ask is whether the house is affordable. When you are on a single income you may not be able to meet mortgage payments, tax payments and maintenance costs associated with home ownership.
Finally, you need to consider the value of the house with respect to other assets. It may benefit you to have other assets equal in value to the house, such as retirement accounts or bank accounts, if you will need more liquid assets or will not be able to pay capital gains taxes on any income realized from the sale of the house at a later date.
Talk to a Lawyer
Trying to divide assets during a time of emotional upheaval is difficult. When going through divorce you should consult an experienced attorney who can objectively assess the situation, advise you of your options, and refer you to professionals for advice on financial planning and tax consequences.