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Divorce negotiations must be driven by vital financial facts

The fall season usually marks an increase in divorce filings in California and other states. Distractions during the summer keep divorces to a minimum, setting the stage for a burst of activity after summer ends and the kids return to school. For people facing an imminent divorce, there are some general financial tips to keep in mind for an easier transition.

Many people try to hold onto a home that they can no longer afford. One of the unexpected turn of events for some persons is that they do not realize that, at least temporarily, they are facing a time of financial sacrifice and tightening of the belt. What used to be two paychecks is now generally only one and in many cases simply not enough to support the same upkeep expenses on the house.

Similarly, it pays to consider the value of liquid assets, such as bank accounts, investments, and brokerage accounts in comparison to the marital home. If one spouse offers to take such liquid funds and leave the other spouse with the house, which is of an equivalent value, it is not necessarily a good deal. The house, being substantially more expensive to maintain, can be a drain on one's economic survivability while the liquid investments will generally be enjoying a modest but steady increase in value, without the same weighty and unending maintenance expenses.

It pays to look at the tax nature of each asset. Doing some computations on tax estimates could prove invaluable in making negotiating decisions. Where the couple's asset base is large enough, it is often helpful to have a financial expert assisting in the process along with one's divorce attorney.

In California and other states, it is necessary to get a qualified domestic relations order (QDRO) for purposes of distribution of the party's share of the other's retirement account. Although the funds received will not be subject to penalty, that may change if they are not rolled over into an individual retirement account within 60 days. There are similar complex issues and considerations that make divorce a difficult process without the steady guidance of  an experienced divorce attorney.

Source: cnbc.com, "When it comes to divorce, not all assets are equal", Sarah O'Brien, Sept. 22, 2017

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