Originally posted on June 3, 2014
As a result of your divorce judgment, there can be tax consequences, bankruptcy considerations, additional action to be taken with regard to your previously elected beneficiaries, etc., all of which should be contemplated in the negotiation phase of a divorce, as opposed to after a settlement is finalized and entered with the court.
Watch our website for more informative articles to come regarding popular family law topics and more details as to the above considerations in divorce settlements, such as bankruptcy considerations and steps for updating your beneficiaries and your will. Any of our three partners are available to review these issues and other important matters in your divorce during our initial no charge consultation.
Tip #1: Be sure to review any TAX IMPLICATIONS that may result from your divorce
When a divorce involves a potential claim for maintenance or transfer of a home or other property, it is best to discuss the potential tax consequences with your attorney or an accountant ahead of time.
In order to avoid inconsistent tax filings or potential complications with the IRS, parties in the midst of a divorce need to confirm whether they will be filing their income tax returns jointly or separately for the current tax year and, if separately, which party will be claiming any interest on mortgage(s), loans, etc. as well as dependent tax exemptions for the parties’ children for the current tax year and in future years.
Tip #2: Seek BANKRUPTCY advisement if you or your spouse is considering bankruptcy
If either spouse is contemplating bankruptcy while their divorce case is pending, it is critical that both parties seek advice from an attorney experienced in bankruptcy law while their divorce is still pending in order to evaluate whether it would be preferable to file a joint bankruptcy prior to their divorce being completed in order to extinguish certain marital debts that would otherwise be assigned to either party in their divorce judgment.
If a party is aware that their spouse is intending to file bankruptcy after their divorce is final, or if the party himself/herself is considering filing bankruptcy, it is critical that they review the terms of any settlement proposal for their divorce with a bankruptcy attorney while still in negotiations in their divorce case, as some debts and responsibilities (e.g., family support obligations such as child support or maintenance) in the settlement may not be dischargeable in bankruptcy.
Tip #3: Be prepared to take action upon your divorce being final to update your BENEFICIARIES
Even though a final divorce judgment or settlement agreement may specify particular financial accounts, retirement benefits, life insurance policies, or other investments as being awarded to or retained by the spouse owning those interests during the marriage, parties should not exclusively rely on their divorce judgment to effectuate changes to the previously-designated beneficiary(ies) on those accounts. Parties should timely review with his/her employer or the financial entity holding the account or policy the necessary steps for updating their elected beneficiaries.
Likewise, parties need to ensure that if they have a will in place at the time of their divorce that it is reviewed and updated or revoked. If the appropriate steps are not taken to timely update beneficiary elections, it may result in benefits being distributed to a former spouse or other unintended beneficiary.
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