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Be mindful of financial missteps when considering divorce

It would be a daunting task to find a more difficult life decision than deciding whether to file for divorce. Putting aside the emotional aspect of divorce, the separating couple must make financial decisions regarding the division of assets, if they can even come to a decision at all. Thus, a person considering divorce should prepare to have a plan regarding the financial assets obtained during the marriage.

During any potential settlement, it is easy for a spouse to miscalculate a financial decision that could leave them worse off. For example, it is easy to ignore the potential tax implications of any division of assets. Tax issues can become a larger issue with a 401(k). It might be tempting for a spouse to take the 401(k) in lieu of other assets; however, any withdrawal from a 401(k) could be taxed. If the spouse seeking the 401(k) needs cash on hand, then the 401(k) may not be the best option, according to financial professionals. Any potential financial mistakes or any additional tax burdens are not exclusive to 401(k)s and other accounts, there is also the commonly-disputed issue of the family home.

Deciding the fate of the family home is also very difficult, especially when children are involved. A person considering divorce should think about whether they can afford the costs associated with maintaining the home and any tax-related costs that come with home ownership. If the spouse cannot afford these costs, then there is always the option of liquidating the home to receive the financial benefits from the sale. The family home, tax liability, and retirement accounts are just a few examples of areas where financial missteps are possible; however, there is also the issue of agreeing to the division of assets.

When considering divorce, it is important to be mindful of the actual legal process. Often, a divorcing couple cannot come to an agreement regarding the division of assets. When an agreement cannot be made, the Colorado court will determine a fair division of the assets, otherwise known as "equitable distribution." The court will engage in an extensive review and analysis of the marital property and the costs associated with the assets. If the court steps into the process, it will be important to keep the court's attention on any unexpected costs associated with maintaining assets obtained during the marriage.

Source: CNBC, "When it comes to divorce, not all assets are equal," Sarah O'Brien, Sep. 22, 2017

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