Tips for a More Financially Fair Divorce Settlement
All investments are not created equal. Below are a few factors to consider when assets are being divided.
1. Often when a home is sold there can be little to no tax due. However when qualified retirement plan assets are withdrawn you can loose approx. 32% or more to taxes.
2. Watch for the liquidity of the assets you are allocated. For example: A Certificate of Deposit (CD) may have penalties if you withdraw it before maturity. Other investments such as real estate, annuities and others can also have surrender charges or fees to liquidate.
3. Be sure you know the cost basis of non-qualified investments such as stocks, mutual funds, etc. The cost basis is the amount you do not have to pay income tax on when the asset is sold. If you receive assets with a very low cost basis and your spouse receives the assets with a higher cost basis, odds are you will pay more in taxes to withdraw the asset and therefore end up with less net proceeds.
4. Also, all debt is not created equal. You may be able to deduct mortgage interest on your income taxes and therefore pay less tax, but car loan, credit card and other interest may not be tax deductible.
Be sure to verify the facts with your tax advisor and/attorney as they specifically pertain to you.