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Common financial errors that people make in a divorce

On Behalf of | Nov 6, 2018 | Divorce |

Texas couples who are going through a divorce may be able to avoid financial errors if they are aware of some of the most common ones. For example, some people may be tempted to spend a lot of money just after the divorce, but they may regret this when the bills are due.

It may also be a mistake to try to pay those bills by liquidating assets because there may be taxes associated with it. This is the case with a 401(k), and if a couple must take a distribution to divide it during a divorce, they will need a document called a qualified domestic relations order. The distribution should be rolled into an IRA. This will prevent the imposition of taxes and penalties.

Alimony will not be subject to tax if the divorce is finalized after the end of 2018. This also means that it will not be tax-deductible for the person who pays it. People who expect to pay alimony might think that quitting work will allow them to avoid it, but this will only cost more in the long run.

Many of these mistakes might be avoided if people create a financial plan. For example, the plan might help them see that they cannot to keep up the mortgage on the marital home.

People who are considering divorce might want to talk to an attorney about the financial situation and their options. Since Texas is a community property state, most of the debt and assets acquired by either person since marriage are considered shared property to be divided equally in a divorce. However, each item does not have to be split in half. Couples may prefer to negotiate an option in which each of them takes certain things of equal value.