Going through a divorce can be challenging emotionally, physically and financially. The decisions you make during your divorce will not only impact your current circumstances, but also your future financial well-being. Many people make the mistake of hurrying through their divorce in order to get it completed as quickly as possible, but this can result in significant financial mistakes. The four most common financial issues involved in a divorce are as follows:
Division of Property
As you contemplate filing for divorce, it is imperative that you take an inventory of your finances, beginning with your assets. In Indiana, marital property includes all assets and debts that belonged to either spouse at the time the divorce is filed. An Indiana court will consider not only jointly owned assets but also any property held separately by each spouse.
The guiding principle in an Indiana divorce is that the court fairly divides the property. However, a fair division does not mean it must be equal. Indiana Code §31-15-7-5 requires the court to divide the marital property in half (or 50% to each spouse) under the premise of equal division. As with every rule, there is an exception if a good reason exists to award one spouse more than half of the assets based on specified factors. Thus, it is always advantageous if you and your spouse can agree on the division of property rather than fighting it out before the judge.
Division of Debt
It is also important to fully understand the amount of debt that will be involved in your divorce. The court must consider both marital and separate debt. A debt is considered marital debt if you incurred it during your marriage. A debt is considered a non-marital debt if it was incurred before the marriage or after you and your spouse separated from each other.
Indiana law affords the judge discretion in assigning liability for debt in a divorce. In other words, the judge may look at which spouse benefitted the most from the incurrence of the debt and assign more responsibility, if not all, for its repayment. Thus, you should obtain a credit report for both you and your spouse to make sure you are aware of every debt that the court will divide.
Many divorcing couples are so focused on the property they want to keep after the divorce that they fail to also consider the tax consequences of each asset or debt. Not all assets are treated the same and your failure to consider the tax implications of each asset can be a very costly mistake.
Examples of tax issues that can arise during a divorce range from who will get the benefit of the tax exemption for dependents to which attorney fees are tax-deductible. There are also tax issues involving alimony and child support payments. Every marital asset should be analyzed to determine the tax consequences associated with it.
If you or your spouse has a retirement plan, it is likely one of the most significant assets of your marriage. Retirement savings are typically considered to be marital property if they were acquired and accumulated while you were married. To divide a qualified 401(k) or pension, a QDRO (qualified domestic relations order) must be prepared. The QDRO allows the qualified plan funds to be divided and transferred in a tax-deferred manner.
If you need to hire a divorce lawyer in Indianapolis, IN, or even if you are simply contemplating a separation, contact The Nice Law Firm, LLP to discuss the potential financial ramifications to you and your family.