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Financial Mistakes to Avoid During a Divorce

1. It may appear that assets are split equally only to later find out that it is not equal at all. For example: One person receives the home valued at $350,000 and the spouse receives the 401K plan valued at $350,000. When assets are later withdrawn from the retirement plan you will need to pay income tax on some or all of the amount withdrawn causing you to lose up to 40% or more. However when the home is sold there may be no income tax due. At a combined federal and state tax rate of 40% there is a difference of approx. $140,000.

2. Asset values may have been split equally, however access to the assets you receive may have penalties if withdrawn too soon. It is also possible for some investments to not be accessible for many years. Examples would be Certificates of deposit that have not matured, Qualified plans such as IRAs, 401K, 403B, Non-traded real estate investment trusts, Rental real estate, Annuities with a surrender charge, etc.

© Nancy Butler, June 2011