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Tips for avoiding financial mistakes during divorce

On Behalf of | Nov 5, 2018 | Divorce

People who live in Kentucky and who are getting a divorce may make some common financial mistakes if they are not careful. For example, some people might be tempted to go on a spending spree during or just after a divorce. While this may be satisfying in the short term, those bills will need to be paid eventually.

People may be able to make better decisions if they create a financial plan. A professional, such as a financial planner, may be able to assist with this. This may help steer them away from errors such as keeping a home despite being unable to afford a high mortgage and cost of upkeep. Another common mistake is selling assets to pay for divorce-related bills without taking into account that there may be tax on the sale of those assets.

For divorces that are final starting in 2019, alimony will not be tax-deductible for the payer any longer. This also means the recipient will not pay taxes on it. However, in general, experts expect both parties to have less money as a result of this change. Sometimes, people are tempted to quit working to avoid alimony, but this only prolongs the process. People should also be aware that they need to take steps to avoid taxes and penalties when dividing a 401(k).

Couples who have children may also need to work out an agreement for child custody and support. These issues along with property division and alimony can all be worked out during negotiation, or the couple can go to court where a judge will decide. While a judge attempts to divide property fairly and make a custody decision that is in the best interests of the child, couples may find that although negotiation may be challenging, they are better able to reach a solution that suits them compared to litigation.