Family Law

Divorce is not a pleasant topic to contemplate. It can be a time of emotional turmoil. It can be a time of financial turmoil as well. Should you find yourself contemplating divorce, along with everything else be aware of the financial planning implications, too.

There are a number of tax ramifications related to divorce. For instance, alimony is considered taxable income to the recipient and is deductible by the spouse who pays it. On the other hand, child support and property settlements are not considered income nor are they deductible. In establishing a financial settlement, it is important to keep such things in mind. The nature and amount of the various payments can be an item of negotiation, especially, if after divorce, one party will be in a higher tax bracket than the other.

Other aspects of tax planning include who should receive the dependent exemption for any children. It doesn't necessarily have to be the parent with physical custody. These issues can be negotiated as part of the divorce settlement. The exemption may be more valuable to one spouse than the other. However, the spouse who relinquishes the exemption should require compensation elsewhere in the terms of the divorce settlement.

Alimony and child support payments can continue for many years. If the spouse who is obligated to make those payments should die, what happens then? A well crafted divorce settlement should require that life insurance be obtained for that spouse so that should a premature death occur, the future payments are covered. In these cases the recipient spouse should own the policy or be an irrevocable beneficiary. Disability insurance to protect future alimony and child support payments is another important topic that should be addressed in a divorce agreement.

Outside of any insurance required to maintain alimony or child support, divorcing spouses should review the beneficiaries of their insurance or pension plans. Chances are that following a divorce, the ex-spouse will not be the preferred recipient of these assets. A divorced spouse may, for instance, now want the proceeds to go to surviving children. If they are minors, or sometimes even if they are not, some sort of trust arrangement may be appropriate.

Health insurance may be another issue that arises in a divorce. If a couple is both insured by one of their employer's health plan, coverage for the non-employee spouse may eventually end. Planning for health insurance coverage should be one of the considerations in a divorce situation.

Social security is one aspect of divorce planning that is sometimes overlooked. A divorced person can be entitled to social security benefits based on his or her ex-spouses entitlement. Other than the other standard eligibility requirements such as age and covered earnings history, the major requirement is that the marriage have lasted for at least ten years before the divorce became final. If so, a divorced person can collect a spouse's benefit, even if their former spouse has died. Naturally, a person in this situation would compare his or her own benefit based on his or her personal earnings record against the amount of the spousal benefit and take the larger. Remarriage will also affect the calculation.

There are a lot of financial issues to consider during a divorce. I've just touched on a few of them. Should you find yourself in such a situation, it will usually be helpful to consult your financial advisor to make sure all of the bases are covered.

This article from the Hampton Union.