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Six topics divorcing couples need to understand - Part II

As discussed in the previous post, divorcing couples should consider how the decisions they make today will impact their future financial security. In the last post, we discussed three areas that divorcing parties must understand: division of property, the definition of property, and assets. In this post we will present three more areas that should not be overlooked.

  1. Valuation of Assets: Aside from cash, valuations of most assets can be very tricky. Without a sale of an asset there may be disagreement as to valuation. Liquidating assets is not always an option, particularly with respect to ongoing viable businesses. Once valuation is agreed upon, it is important to realize that the asset may, in actuality, be worth more or less than that amount. This can be a result of many different factors. For example, the tax treatment of owning a particular asset affects it overall value. Disregarding this aspect can lead to large discrepancies in actual settlement amounts.
  2. Alimony: There are many considerations to consider if a divorcing party seeks alimony payments. Courts generally base spousal support payments on the length of the marriage and ability of the receiving spouse to earn income. These payments can be permanent or of limited duration. With respect to permanent payments these typically end upon the death of the paying spouse. In some cases it might be advisable to consider a life-insurance policy to prevent financial devastation to a spouse receiving alimony payments. This seems particularly relevant for older individuals who may have been married for a long time.
  3. Settlement Options: One of the most difficult tasks facing divorcing parties will be to analyze both the short-term and long-term effects of a potential divorce agreement before entering into it. This is especially true for high net-worth individuals. Failure to thoroughly examine the financial consequences, including the tax implications of all areas of a divorce, can lead to very different financial outcomes and will affect the parties long after the divorce has become finalized.

Although focusing on the six areas discussed in this two-part post can help minimize financial mistakes, they are in no way intended to be an exhaustive list of all the issues involved in a divorce. It is vital to analyze all financial issues before a divorce decree is issued. Once a divorce is finalized it can be very difficult to change the outcome. Although emotions tend to run high, the goal should be to reach a divorce settlement that will provide financial security for both parties.

Source: The Huffington Post, "The Top 6 Serious Financial Mistakes Women Make During Their Divorce," Jeffrey A. Landers, 18 Feb 2011

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