The Journal of Accountancy recently published an interesting article addressing the issue of 'gray divorce.' Gray divorce refers to couples divorcing later in life and while a 30-something divorcing couple may be squabbling over custody, visitation, and credit card bills, those couples divorcing over age 50 are facing battles over retirement funds, the long-term residence, and a diverse portfolio of assets.
Oftentimes, divorcing couples believe that because the court suggests a particular division of assets, that it is what they must do. Couples may not realize that the court will decide in the absence of either party striking an agreement. When the court makes a decision for the couple, this may not be in the best interest for either.
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Meeting with your CPA, whether as a couple or individually, will allow you to take a closer look at the reality of the tax and financial implications depending on how the assets are ultimately divided. Also, your CPA will run scenarios, especially if one spouse was the higher earner or if one spouse did not work, which will greatly affect the financial future of both.
For older couples going through a divorce, typically more complicated issues arise. For example, how are the retirement plan/IRA assets going to be split? If one spouse is intent on keeping the house, will that dramatically impact their retirement savings? When can the spousal social security benefits begin, if the couple was married for more than ten years, that is? Will these benefits be sufficient to allow the spouse to not have to work? Can the spouse find work if they’ve been out of the workforce for some time? Financial and tax advice must be sought prior to the start of the divorce negotiations. If not, a fair segregation of the marital assets may not occur.
Finally, Congress still has not made up its mind as to whether or not alimony will continue to be deductible for the payor and taxable for the recipient. If the House is victorious and alimony is no longer part of the tax code, some tax planning issues will have to be addressed for both parties.
If you are considering divorce or in the midst of divorce negotiations and have questions, I'm happy to help. Contact us at email@example.com or 216-831-0733. We're ready to help make a difficult situation better.