Divorce can have a devastating effect on everyone involved. While some couples are able to navigate a civilized divorce and can remain friends and co-parents, many couples fight and suffer greatly. Under such circumstances, and especially if they end up in court, the result can be permanently damaging for both, and for a very long time.
Can something be done to lessen the negative power of a divorce? Are equitable settlements really possible? YES. Mediation with Nadia can turn a damaging approach around and empower couples to move forward with decisions and an overall settlement which is acceptable to both parties.
The following guide to a divorce is exactly that – a guide. It is meant to help you prepare for the possibility of a divorce. But divorce is a process, a series of steps. The key is to take small steps and keep moving forward. Nadia will guide you through the process of divorce, and help keep the steps manageable and moving in a positive direction.
Many times one spouse doesn’t know what the other spouse is doing concerning income, expenses, investments, insurance, loans, and even a family business. You and your spouse need to provide this information to the mediator.
Make A List of Assets and Debts
When you have your first appointment with Nadia, be prepared with your list of assets. Don’t guess. That wastes your time and hers, and costs you extra money. It also important to list debts and loans from Mom and Dad, if any.
The lower-earning spouse or the stay-at-home custodial parent may be entitled to temporary support. This is to be used to pay bills for ordinary living expenses while your case is being settled. It does not necessarily determine the amount of alimony and child support you will receive.
Tax Issues With Alimony
Remember, alimony is taxable to the person who receives it and tax-deductible by the person who pays it. Some creativity can be used to offset the higher tax bracket of the paying spouse with the lower tax bracket of the recipient to end up with more dollars in the pockets of both spouses.
The IRS has specific tax rules that govern the paying of alimony. One thing they try to avoid is allowing divorcing couples divide their property by calling it alimony, so that the person with the higher tax bracket can get a tax deduction.
To avoid this, the IRS says that alimony should not drop from one year to the next by more than $15,000 within the first three years after divorce or they will not classify it as alimony. In that case, the person who had been taking the deduction will have to re-capture all those tax deductions and pay them back to the IRS. This is called “Alimony recapture.”
All states now have Child Support Guidelines. They are usually based on the incomes of both parents and the amount of time the children spend with each parent. Nadia will go over all the calculations in her office with both parents. Child support is always modifiable.
Consider Cost of Living Increases for Child Support
We all know that children seem to get more expensive as they get older. They seem to have more expensive ‘toys’ such as computers, skis, orthodontics, etc. Many couples discuss and anticipate additional expenses including a cost of living increase each year for child support.
Know The Difference Between Separate and Marital Property
Separate property is everything you bring into the marriage and keep in your own name. It is also what you receive during the marriage as a gift or an inheritance. Marital property is everything acquired during the marriage – no matter whose name it is in. The increase in the value of separate property could be marital.
For instance, consider a $20,000 savings account brought in to the marriage, which earned $3000 during the marriage, and is now worth $23,000. The $20,000 would be set aside as separate property and the $3000 would be included as part of the marital assets to be divided. Assume the wife adds $100 each month to her IRA which is in her name only. That is still considered a marital asset because it is “everything acquired during the marriage, no matter whose name it is in.”
Capital Gain on House
The 1997 revised tax law says we can no longer roll over capital gain in the family home. The one-time exclusion of $125,000 is also gone. Instead, we have something even better. Now, each spouse can take up to $250,000 exclusion if they have lived in the house two of the past five years.
If your house has a very large capital gain, you should consult with a CPA or a financial divorce specialist to see how to handle this the best way. It is possible for both spouses to take the $250,000 exclusion for a total of $500,000 if it is handled properly.
Find Out The Basis in Your House
If you receive the family home that has a low basis, you may be liable for capital gains taxes later. This would also apply to stock accounts and other real estate. Basis does not relate to the amount of the mortgage. It relates to the amount originally invested in the property adjusted by improvements, sales costs, etc.