While it is true that the end of a marriage is emotionally taxing, it still may be worth the effort to pay close attention to the financial aspects. Not every asset is worth its weight when the monetary costs of the divorce are calculated. Pennsylvania has its own laws regarding the division of property, but there are a few points to keep in mind when working toward a settlement agreement.
First, if a family home is involved, it may not be the best solution for one spouse to keep the home and the other to seek an equitable share of other assets. The house could become a financial burden for the spouse who retains ownership. It may become unsustainable when a couple’s resources are now expected to stretch for two households. The monetary costs of its upkeep and taxes alone may make retaining the home unaffordable. Selling the property may make more sense in the long term in spite of the emotional upheaval that may accompany such a decision.
Other financial decisions may include one spouse seeking ownership of a bank account while the other expects to receive a retirement account such as a 401(k). There is no tax penalty on the bank account, but there could be a heavy tax on the partner who chooses the retirement account. When these types of assets are part of a divorce settlement, a qualified domestic relations order will be needed in order to split these accounts. Having such a document (which must be approved by the company holding the retirement account) enables the parties to split the asset without paying an estimated 10 percent in taxes as long as the portions are rolled back into another retirement plan.
Another decision that could be beneficial is seeking to take out a life insurance policy on the former spouse who is responsible for paying either child or spousal support. This policy would ensure that the death of the supporting spouse will not financially cripple the one who receives these often vital payments. While a divorce signals the end of one phase of life, it does not mean that one cannot flourish in the life ahead. Pennsylvania families can seek the guidance of an experienced attorney to guide them through this often tumultuous time.
Source: CNBC, “When it comes to divorce not all assets are equal“, Sarah O’Brien, Sept. 22, 2017