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|Posted on March 18, 2022 at 6:10 PM||comments (263)|
Getting a divorce is one of the most challenging life-transitions you can experience. Add the uncertainty about your hard-earned money, the experience can get even more stressful. Here are five steps to help keep your finances intact during—and after—a divorce:
Step 1. Assess your financial health, make a budget and stick to it!
Start by reviewing your income, retirement accounts, investments, and insurance policies. In fact, gather those documents and save them to a flashdrive for your lawyer. Next, make a budget that reflects your income and projected monthly expenses. Include both your personal debts and debts you share with your soon-to-be Ex. Be sure to think about NEW expenses such as finding new housing or buying a car on a single income and legal costs. You must remember especially if you are the higher earner that now you are basically supporting TWO households.
Step 2. Target shared debts first
Debt on joint accounts can be an issue. Despite whatever your marital settlement agreement or final decree says, your creditors will continue to consider both of you liable for the shared debt. Keeping those accounts open may pose problems later if your Ex falls behind on payments or simply refuses to pay them. Paying off those debts pre-divorce can help you avoid those issues.
Step 3. Divide assets thoughtfully
You and your Ex might agree about dividing shared assets equally and that’s good. But consider the following:
If the two of you will be in different income brackets post-divorce, consider the tax implications of holding on to various shared assets. Consider, some retirement funds are after-tax accounts, meaning taxes were already paid on contributions, and eligible withdrawals will be tax-free. Others are pre-tax accounts, meaning you will owe taxes on withdrawals.
For assets that come with tax obligations, the higher-earning party will likely pay higher taxes from keeping them. On the other hand, the lower-earning party may have a harder time paying the taxes.
You may also find that you and your Ex have different needs. If you own a home together, for example, carefully consider liquidity when deciding whether either of you will keep it. If one of you needs access to the equity tied up in the house, it may make sense to sell it.
Step 4. Revise your will and other documents
As a general rule, divorce will not automatically remove your Ex as the primary beneficiary of your estate and other assets. Designate new beneficiaries for your estate, life insurance, annuities, and retirement accounts! Don’t do this until after the divorce is finalized as doing so may violate the temporary domestic order in place during the divorce.
Step 5. Make a Plan B
If your marital settlement agreement says your Ex must pay spousal support (alimony) or child support payments to you, prepare for the possibility that they will fail to pay or pay late, especially these days of Global Pandemic and Economic uncertainty. Keep money in an emergency fund to cover expenses, such as childcare, in the event your Ex fails to pay.
In the end, be sure to consult your tax professional and financial advisor before entering into any marital settlement agreement. Do not depend upon your family law attorney to offer you tax and financial advice. Review the proposed marital settlement agreement with these professionals prior to giving your family law attorney authority to close the deal with your Ex’s lawyer.
|Posted on April 14, 2018 at 10:51 AM||comments (839)|
Top 10 Things NOT to Do When You Divorce
Here are the top 10 tips on what to avoid when filing for divorce.
1. If you’re a woman, don't get pregnant. If you’re a man don’t get anybody pregnant.
Having a new baby during the pendency of your divorce is problematic. Not only is not healthy for you or the baby, but it can be off-putting to the Court should the judge find out. Likewise, if you’re a man, don’t get anybody pregnant. Although New Mexico is a no-fault state, the Court won’t be happy to hear that Dad has a new family in the making before he’s even divorced. Also, if you and your soon-to-be Ex are occasionally still on for an occasional “booty-call” beware! A pregnancy can only complicate an already complicated situation.
2. Don't forget to change your will and insurance.
Change your will! If you don’t update your estate plan, your Ex will have a legal claim to your estate in some circumstances. Be sure that you also change life insurance beneficiaries.
3. Now’s not the time to become promiscuous.
New Mexico is a no-fault state, so adultery is not legal grounds for divorce. However, in terms of determining custody, a parent’s behavior can be questioned and parents oftentimes find themselves under the microscope. Courts may frown on a parent’s home being open to new houseguests especially if the children are present.
4. Now’s not the time to discover substance abuse
Substance abuse is a leading cause of divorce and if your substance abuse was a cause of your divorce then perhaps you might want to work on that. Regardless, during the pendency of your divorce, alcohol and drug abuse are not things that will help. If you want a healthy relationship with your kids and hope to have visitation, then keep drugs and alcohol in check. Divorce lawyers love to argue to the judge that the other parent is dangerous to the children because of a recent DWI or rumors of hard drug use.
5. Don’t be a Bad Dad or Bad Mom. Be the best parent you can be.
Your kids are going to need you now more than ever. If you want to be the custodial parent then this is your moment to shine. You need to get or stay in your child’s life. Examples are getting to know the school, including the teachers and staff, visit your child’s extracurricular activities or encourage your kids to get involved in activities such as taekwondo, dance, scouting or gymnastics.
6. Don’t go it alone. Think about seeing a therapist.
There’s a couple of reasons to consider seeing a therapist. First, the divorce process can be emotionally grueling on a person. A good therapist can help you navigate through the mental and emotional challenges that everybody faces during these times. Secondly, many divorces are caused at least in part by such things as substance abuse, domestic violence, mental illness, and financial complications. A therapist might be a good resource to help you with some of these concerns. And lastly, a therapist can document your progress and fitness as a parent.
7. Don't Wait Until After the Holidays
You already know the holidays are going to be difficult. So why wait? Divorce lawyers often see a bump in business before, during, and after Christmas. It's also easier to get used to an empty home before the holidays.
8. Don't Forget About Taxes
Be sure to visit with a tax professional to determine the best tax strategies for you. This includes tax deductions for children, whether you should file “married separately” etc. These are not questions for your lawyer exclusively as most lawyers are not tax specialists.
9. Don't "Settle" Early
Of course, you want out of your marriage immediately but that doesn't mean you should forfeit your family’s financial security. Make copies of all of your important financial documents: pension statements, tax forms, credit card statements, and other records. It will help you become aware of what you own and even what you owe. This is all very necessary when it comes to the legal work that must happen during a divorce. This will make your divorce easier in that your attorney can already begin working on the financial disclosures.
10. Don't Increase Your Debt
Divorce is expensive. On top of attorney's fees, you will need money to set up a new household. Although the law permits temporary division and allocation of assets to ensure that each party isn’t destitute, this process can take awhile and it can take even longer before you receive your first check from your soon-to-be- Ex if the Court even awards an equalization in your favor. Also, you will be responsible for half of the expenses during the divorce such as real estate professionals, tax professionals, custody evaluators, etc.
I'm sure you may have additional questions. Please contact me and I'd be more than happy to discuss your case.
|Posted on May 18, 2015 at 8:08 PM||comments (287)|
Who Gets to Claim the Kids for Taxes?
The issue comes up often. Who gets to claim the kids for tax purposes? It’s an important question because the answer equals big money. There are many tax benefits with respect to claiming a qualified child as a dependent. For the calendar year of 2015, claiming one’s child as a dependent reduces one’s taxable income by approximately $4,000. Another possible tax benefit is the Child Tax Credit, which is worth up to $1,000 for each child under the age of 17; bear in mind there aree certain eligibility requirements that are based on the parent’s adjusted gross income. The final tax benefit includes the ability to claim a credit up to approximately $2,100 for qualified child care costs. When you file separately you face a potential problem because only one parent can ultimately claim the child. Because of this, single parents, and married parents that are going through a divorce and choose to file separately, often fight over who can claim the kids as a tax deduction.
According to the Feds, the parent with the most custodial time gets the tax relief. IRS Publication 501 covers exemptions, standard deductions and filing information explains that an individual may claim a child as a dependent on his or her tax return if the child resides with that individual “for more than half of the year. . . .”
Despite this, in New Mexico our courts allow single parents to alternate the years that each parent can claim the child as a dependent; provided that the parents have joint legal custody and child support is up-to-date. This reading of the IRS regulations was highlighted in a New Mexico Court of Appeals case, Macias v. Macias, 126 N.M. 303. In Macias, the trial court awarded Mother primary custody of the parties’ three children, and ordered the Father to pay child support. The court also allowed Father to claim two of the three children for tax deduction purposes, despite the fact that Mother had primary physical custody of the children. Mother appealed the trial court’s ruling, arguing that “. . . federal law controls and that the court had no choice but to allow Wife, as the custodial parent of all three children, to receive the exemptions for each child regardless of support payments."
The New Mexico Court of Appeals ultimately upheld the trial court’s ruling, reasoning that the federal law does not prevent a state court from alternating or distributing the right for parents to claim children as dependents for tax purposes. In practical terms that means that New Mexico courts are not bound by the IRS and have the legal ability to reach a decision based on what it believes is fair, equitable and of course what’s in the best interests of the children. This is important to know before you walk into Court. This is general legal information. If you have further questions regarding taxes, please consult a tax professional.
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