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Money mistakes to avoid during divorce

While Nevada individuals might be in a hurry to finalize the divorce process, rushing through the financial aspects of divorce can be costly in the long run. Learning to avoid a few mistakes that individuals sometimes make regarding finances during divorce can make the whole process run more smoothly.

One mistake is believing that assets that have the same value will result in the same net amount. Taxes on assets can have a dramatic impact on the actual value that a spouse will receive from the asset. For example, unrealized capital gains on taxable investments can result in a future tax liability. Taxes are particularly relevant when dealing with retirement income. For example, Roth IRAs are funded with pre-tax dollars, while 401(k)s are funded with after-tax dollars. A distribution for a Roth IRA does not incur taxes, while one for a 401(k) does. Additionally, taking funds out early from a retirement account may cause a spouse to incur a tax penalty.

For many divorcing couples, retirement assets make up a significant portion of their marital estate. In order to get a tax-free transfer of retirement assets, an individual must follow specific rules such as specifying that an IRA is to be treated like a transfer incident to divorce. In some situations, a qualified domestic relations order may be ordered by the court to help ensure that a transfer is made tax-free. Finally, a growing trend is for individuals to have more digital assets. While photos, videos and music may not have much monetary value, they often represent a strong emotional bond. Couples may wish to ensure that both parties have access to these assets after the divorce.

A divorce can help terminate the relationship between two spouses and provide finality with a division of assets and a division of debt. A lawyer may help divorcing spouses to consider all financial aspects and draft a separation agreement that clearly denotes all agreements made by the couple.

Source: Forbes, "6 Money Matters Divorcing Spouses Often Overlook", Leslie Thompson, August 19, 2014

Source: Forbes, "6 Money Matters Divorcing Spouses Often Overlook", Leslie Thompson, August 19, 2014

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