Divorce is a tough period in life for any individual. While nobody wishes to go their separate ways when taking the sacred vows of marriage with their significant others, but, […]
Divorce is a tough period in life for any individual. While nobody wishes to go their separate ways when taking the sacred vows of marriage with their significant others, but, life may have other plans. If you are at such a precipice of indecision, with no hope of turning back, then it is ideal that you familiarize yourself with all the necessary information.
Being well-prepared before the event ensures that the process doesn’t have to be harder than it already is.
Advantages of Filing Early in the Year
The practical advantage of filing earlier is that all your accounts related documents of the previous year are easily available. This includes pay stubs, W2s, 1099s, retirement account summaries, credit card statements, etc.On the other hand, you can choose to wait until later in the year because of the current economic uncertainty. As the payor spouse, you may end up paying more than you can afford based on your recent tax returns in 2019 while your earnings took a hit in 2020. Whereas, as a payee spouse, you may end up with a huge support reward.
Questions to Ask Yourself as You Decide When to File
If you are still unsure then here are answers to some questions that can help you decide an ideal time for filing for divorce.
Are You Expecting a Windfall in the Upcoming Years?
File for your divorce at the earliest possible time to get the whole or partial amount for the liquidation of business interest or payout of a lucrative deal listed as separated property instead of marital. This also extends to commissions on works-in-progress. The earlier you file, the more reward you can keep to yourself.
Does Either of You Have a Business of Your Own?
If either spouse owns a business, the valuation date is another factor that affects your financial gains from the divorce. If you expect a boom in your business, it makes sense to file for a date before the value rises. Conversely, the same principle holds for delaying the date when the business fall
When Is the Ideal Time for Your Family?
Financial and legal implications greatly influence your decision-making in the divorce process. However, the emotional aspect is equally important. Your family situation should always play a role when both spouses wish to make a choice.
What to Consider Before a Divorce
Following some fundamental changes in laws regarding divorce in the US. This has led wealthy Americans to rethink the alimony deductions in divorce proceedings against the benefits for their children and assets. Before the end of the year, here are four topics that couples considering divorce should look into:
As per the Revenue Act 1942, alimony is deductible for the payor spouse and taxable for the payee spouse. This was done to accommodate spouses from joint tax returns to paying tax separately. Unfortunately, this has led couples to underreport their alimony payments. This involves ex-spouses understating their alimony to reduce taxes or overstating it to increase deductions.
After the tax change for divorces after December 31, the payer will be taxed on the full amount whereas the payee won’t have to spend a cent. To overcome this issue, couples need to negotiate alimony agreements before the end of the year to preserve deductions.
Divorce outcomes are more uncertain when prenuptial agreements are involved. Most documents of this nature calculate alimony based on years of marriage with deductible payments for one spouse. Furthermore, such clauses may not hold beyond 2019.
Additionally, with no guidance from the IRS, married couples should renegotiate their agreement as the document for deductible alimony may not be honored for alimony which is no longer deductible.
Other reasons may affect the timing of your filing process. One such reason is the valuation of private businesses.
This means observing whether higher cash flow will result from the change in the tax law this year. This will not be known until the business owner files a tax return next year.
Even if the valuation is slight, not knowing the exact value makes negotiations more uncertain. So if you are expecting a big increase in the value of your business next year, it might be better to postpone filing for your divorce.
This mainly refers to the matter of child support which is nondeductible. However, it is worth looking at the tax benefits of other assets.
Spouses with child custody usually opt for the house but with new tax changes, the family house will lose value in the long run compared to retirement accounts with similar value. This is because of the high deduction of local and state taxes.
For better understanding, spouses might not draw upon the retirement account well into their 60s to be more financially stable in their twilight years by choosing the retirement account over the house. Moreover, they aren’t liable for property taxes.
Why is it Best To Plan For Divorce First?
Filing first usually puts the spouse in a relatively advantageous position, here are some reasons why you should consider filing first:
● You get the priority for professional help like attorneys.
● You can acquire additional support including financial incentives for you and your children.
● Being prepared prevents emotional compromises and distress for you and your kids.
● You get ample opportunity to get all the necessary documentation in your defense.
The Disadvantages of Filing First
Since we have highlighted the positive sides of the filing process, it is only fair to be made aware of the downsides of the proceedings.
- You alert your spouse to your demands which will allow them to prepare for a counterattack.
- You may have to pay more for filing and attorney fees as your lawyer collects evidence.
- No turning back, with filing first, you have cemented your decision with your spouse with no hopes of reconciling.
Things To Be done Before Filing For Divorce
Now that you have figured out the significance of the timing of the divorce, here is a stepwise approach to take once you have made the decision.
● Hire a Good Divorce Attorney
● Organize Your Finances
● Establish Credit In Your Name
● Gather Proof of Income
● Evaluate Joint Financial Accounts
● Close All Joint Credit Accounts
● Set Your Post-Divorce Budget
● Decide To Stay or /move Out
With the pandemic, cracks in relationships had become undeniable chasms. If post-covid divorce is the only option for you, then it is important to be prepared for it. Gathering information for your case, preparing financial records, looking at housing options all the while handling yourself emotionally, mentally and physically is a monumental feat. Furthermore, you also need to be mindful of your spouse’s privacy.
This is why it is imperative not to go through the process alone. With personal and professional support you can overcome this adversity and pass this difficult chapter of your life.
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