By John Jones, Esq.
In most divorces, the differences between the parties are financial. Some issues are obvious and some are not. Alimony, child support and division of marital property are certainly at the top of the obvious list. However, what other financial issues should you think about? The following is only a partial list, but it is a good place to start:
- Medical, dental and prescription drug insurance – In most families, one of the spouses insures the entire family, usually through their employment. However, after a divorce, the ex-spouse can no longer qualify as part of the “family” insurance. By law the ex-spouse has the right to continue the insurance previously provided for an extended period of time. However, that person must pay for the coverage at a rate in excess of the group rate offered via the employer. It is important for the uncovered spouse to determine the cost of their post-divorce insurance well before the actual divorce.
- Credit card accounts – All credit card accounts in joint names should be canceled. This usually requires the account balance to be at zero. Sometimes that is not possible. If the joint cards cannot be paid off (for example from the sale of the marital home), the parties must agree on which will assume the debt and find a way to assure the other that the payment(s) will be made.
- Credit rating – Many times marital debts go unpaid or are paid late during the divorce. Whichever party is the debtor could suffer a “hit” on their credit rating. This may make it difficult, if not impossible, to get credit after the divorce. It may be a good idea to check each party’s credit score before the divorce to plan for post-divorce credit issues.
- The marital home – Should it be sold or does one of the parties want to “buy-out” the other’s interest? As a result of the recession the country has suffered, many homes are worth significantly less than the amount owed on the mortgage.
- Income tax returns – If the parties are married on December 31st, they can file a joint return (married filing jointly), even if they do not live together. This usually results in the lowest taxes paid. However, the parties should plan on the post-divorce income tax returns. For example, who should take the children as exemptions, will one of them face significant capital gain taxes when they dispose of the property they receive in the divorce, what will be the ultimate tax effect of retirement accounts or deferred compensation plans?
Your attorney and your financial or tax advisor will help you identify and plan for financial issues which must be considered before you get divorced.