Knowing that you got your best divorce settlement means you’ve considered a lot of things that aren’t necessarily on an attorney’s radar or within the realm of his capabilities. Here’s a list of items that you should include when putting together your divorce settlement agreement. A CDFA® divorce financial planner or mediator is your best resource for ensuring you and your spouse are agreeing on a settlement that is fair and strategically planned for an optimal outcome. 

 

ITEM

WHY IT’S IMPORTANT

CONSIDERATIONS

Proper identification of marital and separate property

You split marital assets but keep your own separate property.

It’s not always clear about what constitutes marital property. Co-mingling of funds, growth on real estate and owned businesses may have an impact on the amount to be divided. A Certified Divorce Financial Analyst (CDFA) can conduct a separate property tracing to determine what is marital and what is separate.

Assessment of tax implications

No all assets are treated the same with respect to taxes. Trading assets of equal value but different tax treatments can have a huge impact on long-term financial health.

What are the applicable tax classifications for retirement funds vs. real estate vs. stock options, etc.?

Consideration for both short- and long-term financial implications

Alimony, child support, and how you split assets can result in substantial differences in long-term financial health even when the short-term needs are met and the division of assets looks fair.

It’s important that you look at the impact of the divorce on near-term as well as future financial health. A CDFA can provide financial projections for both spouses before they agree on a particular settlement.

Provision for allowing spouse to remain in marital home under adverse financial circumstances

Sometimes one spouse wants to continue to live in the marital home but can’t re-finance it on their own. Maybe, too, the house is “under water” and can only be sold as a short sale or foreclosed. Additionally, there are capital gains tax exclusions considerations to consider when transferring ownership to one spouse.

There are some clever ways of handling the marital home to allow one spouse to continue living in the property for a period of time without the other losing out.

Accurate valuation and division of pensions

Many misunderstand what figures to use for division of a pension.

Pensions are subject to a coverture fraction, accurate identification of payout amounts, cost-of-living increases, and the appropriate discount rate.

Streamlining of asset division

Simplify administrative and legal follow-up

Sometimes it’s better to leave a pension, other retirement account, or business owned whole and aligned with just one of the spouses. Other assets or structured notes can be used to avoid selling assets or dealing with Qualified Domestic Relations Orders (QDRO’s).

Treatment of employee bonuses and other non-cash benefits

Executives and business owners may receive a large portion of their compensation in the form of bonuses, stock, car allowances, and other benefits that don’t readily show up as income or assets.

It’s important to thoroughly review employee agreements for executives and accounting records for business owners.

Proper accounting of stock options and restricted stock units (RSU’s)

Employee stock options earned while married are a marital asset whether or not paid before separation or divorce.

Determining the marital portion, vesting, and valuation of stock options and RSU’s is complicated and best left to financial specialists.

Option for alimony buyout

Nobody likes alimony.

Alimony payments are painful to the obligor and uncertain to the obligee. Why not just determine the present value of the future payments and include it in the division of assets?

Accurate identification of separation date

The separation date can have substantial impact on valuation of assets.

Is it the date the divorce complaint is filed, the spouses started living in separate bedrooms, or something else? What if there is a temporary reconciliation?

Optimizing filing status and deductions

The difference between filing single vs. head of household can make a big difference in tax payments.

Under shared custody arrangements, child exemptions can be rotated to allow both parents to file as head of household.

Protection of future alimony and child support with life insurance

If a buyout isn’t possible, the oblige should have protection is something happens to the obligor.

Obtain insurance protection that you know won’t be cancelled.

Inclusion of a detailed parenting plan

Even if you and  spouse fundamentally agree on custody and how to raise the children, there may come a time when circumstances change or there is a difference of opinion.

Parenting plans that address a wide array of issues should be included in a property settlement agreement to protect the children and both parents.

Impact on future college financial aid for the children

Custody decisions and child support can have implications for college financial aid.

One should consider how settlement decisions might affect future financial aid to pay for college expenses. 529 plans should be managed so they have minimal impact on financial aid awards.

Assurance that all assets have been accounted for

Are there any suspicions that one spouse has been “preparing” for the divorce and diverting assets?

Consider the use of a forensics specialist to examine financial records for hidden assets.

Accurate business valuations

There are a variety of ways to value businesses in divorce, some more expensive and time-consuming than others.

Make sure you have an accurate valuation of businesses owned before settlement options are reviewed.

Timing of divorce on Social Security

Timing of divorce can impact future social security payments.

You may want to delay your divorce to optimize future social security.

Identify follow-up tasks to ensure compliance

It’s not time to rest when the property settlement has been filed and the final divorce decree is received. Follow-up is essential to obtaining and protecting rights to assets.

Insurance, QDRO’s, quit-claim deeds, beneficiaries, and more need to be handled after a divorce. Make sure you get a comprehensive list of what still needs to be done once your divorce is final.

 

 

 

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