Residents of New Jersey who are seeking a divorce must often find a balance between strong emotions and practical concerns about their finances. Where a couple has diversified assets, the process generally requires even more attention to asset taxation, immediate cash flow and jointly-held debts. A failure to attend closely to the implications of various property distribution proposals could place a party at a severe disadvantage in the future.
Some assets have immediate tax advantages, and others are both taxed and penalized for early liquidation. An example of the latter, faced by some spouses requiring immediate income, is a retirement account. A Roth IRA may be withdrawn from or closed and divided without either spouse suffering a tax penalty. Other types of retirement accounts could impose penalties and taxes on such actions. The transfer of all or a portion of an employer-provided retirement account will require a qualified domestic relations order.
Debts held jointly or by one party may be exchanged to the other party as part of the divorce agreement, but steps may be needed to ensure debts do not result in problems for one or both ex-spouses. A couple seeking to transfer a home loan to one spouse, for instance, must refinance to remove the other spouse’s name. It is important to remember that creditors are not bound by a property division agreement, and can continue to go after either signatory to a joint obligation until one party’s name is taken off of the account.
A variety of divorce issues can prompt strong emotions, including child custody and visitation, disputes over family heirlooms and the general pressure of what may be a radically altered lifestyle for one or both spouses. These emotions often cloud thoughts regarding finances that can put the more financially knowledgeable spouse at an advantage during property division. A fair agreement may rely on each party having access to its own family law attorney.
Source: Market Watch, “Divorce? The 6 worst money mistakes“, Leslie Thompson, September 23, 2014