Now that summer is over and the holidays are right around the corner, the number of divorces in the United States will increase substantially. No matter how sure you and your spouse are about splitting up, your divorce can still be an emotional and tumultuous process. As you proceed with your divorce, you should focus on making sure that your finances are secure as you divide the assets and go your separate ways. You may want the California courts to finalize your divorce as soon as possible, but it is in your best interest to act carefully and understand how each decision you make will affect your financial future.
Many common divorce-related mistakes are connected with the family home. This is understandable, considering that people may be emotionally attached to the place where they built a life with their spouse and children. However, you cannot let your emotions get in the way of making the best financial decision possible. The reality is that you may not be able to live in your family home now that you do not have your spouse's income to put towards upkeep costs and mortgage payments. If this is true for you, do not insist on keeping the home or offer to take the home in lieu of other assets, such as retirement accounts and investments.
You should also be aware that different financial accounts are taxed differently. For example, withdrawing money from a 401(k) account may be taxed as regular income, whereas withdrawing money from a checking account does not incur a tax. You should also make sure you get a qualified domestic relations order, or QDRO, to be able to access your portion of your ex-spouse's 401(k) plan. If you get a court order, you won't have to pay a penalty for taking money out early. However, you have to transfer that amount into an individual account within 60 days to avoid paying income tax.
Being aware of these potential mistakes will protect you throughout the divorce process and ensure that you have financial stability once you are legally single again.
Source: CNBC, "When it comes to divorce, not all assets are equal," Sarah O'Brien, Sept. 22, 2017