Top 10 Traps of Handling Your Own Divorce Settlement

May 16, 2013

Many people want to negotiate their separation and divorce without using an attorney.  The reasons typically revolve around saving money and/or the fear of evil attorneys creating an unnecessary fight.

I am all for people resolving their own disputes whenever possible.  But, in divorce, there are traps waiting for people who want to do it themselves.  Here is a list of 10 the most common traps:

1. Failing to account for capital gains taxes

A lot of people just divide up assets or debts without regard to this issue.  This can provide a nasty surprise if capital gains taxes reduce the value of the assets that seemed “equal” when you agreed on them.

2. Failing to structure financial terms to avoid taxes

Giving money or assets to your ex-spouse can bring on tax liability.  Withdrawing retirement funds can trigger tax liability.  Divorce situations can be excluded from some kinds of taxes, but only if handled correctly.

3. Retirement account division

Dividing these accounts is complicated.  There are federal, state and/or tax laws that must be satisfied to avoid bad surprises down the road.  Special orders from a court may be required to divide up a retirement account.  Also, planning for what happens if the owner of the retirement account dies after separation, but before the account is divided is complex, but crucial.

 4.    Small business and family business ownership

Small business and family owned businesses present special considerations for a divorcing family.  Failing to properly address these issues can lead to future problems with ownership, liability on business debts and other issues impacting the business.

 5. Planning for income changes in support obligations

I have talked to many people who tell me that they handled their own separation agreement and agreed to pay “x” dollars a month but now cannot pay it because they lost a job or took a pay cut.  This is a great way to end up in court and financial trouble.

6.      Agreeing to obligations that are not legally required

You may inadvertently agree to do things that no court could require.

 7.     Agreeing to things that are not enforceable

You may depend on your spouse’s agreement to do something only to later discover that you cannot actually require them to do it under the law of your state.

 8.     Failing to formalize your agreements properly

Creating a legally enforceable divorce settlement agreement in North Carolina is not as simple as a handshake or even a just a written signed agreement.  If it is not done correctly, your agreements may fail.

 9.      Agreeing to numbers without budgeting or planning

Too many people agree to financial arrangements without having the slightest idea of how those arrangements play out long term, or sometimes even short term.

 10.     Failing to structure spousal support for tax purposes

There are very specific tax laws and state laws that apply to spousal support payments.  Failing to structure spousal support payments appropriately can lead to surprising tax and legal ramifications years after you thought your divorce was put to bed.

 If you are facing separation or divorce, then consider consulting a qualified family law attorney before you finalize an agreement.  An ounce of prevention is often worth a pound of cure.

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