A divorce is hard emotionally and financially for many parting couples. But when significant assets are involved, a divorce can be especially challenging.
It’s vital that both parties carefully plan the various components of divorce — from property settlement to child support — to help ensure a fair divorce settlement.
The Mississippi chapter of the International Association for Financial Planning (IAFP) provides answers to some commonly asked questions:
Q: My spouse and I are planning to divorce. How do we handle our assets, which include stocks and bonds and a vacation home?
A: First, conduct an inventory of yours and your spouse’s assets. Each of you should separately list all assets and their estimated value. If your spouse has assets in his or her name only, list those as well and include what you think they’re worth.
Then compare lists with your spouse to make sure all assets are included in the divorce settlement. It may be necessary to bring in an appraiser if it’s difficult to judge an assets value or if you and your spouse disagree on the value. A mediator or lawyer can help you decide who will receive each asset.
Remember to consider asset liability when planning a settlement. There are no tax consequences when assets are transferred during a divorce. However, the spouse receiving the asset retains the original cost basis of the asset, and that unrealized gain is a liability. This applies to stocks, bonds and other assets that may appreciate in value.
Q: I have received custody of my child. How long should my spouse pay child support?
A: That depends on the type of expenses your spouse has agreed to pay. If you want help in paying college costs, request support until your child’s 22nd birthday, or until the child has received a bachelor’s degree.
Educational funds should be transferred to a custodial account for protection. Keep in mind that child support is non-taxable to the receiver and continues if you remarry.
A professional financial advisor can provide objective advice and help you determine the amount of support you’ll need.
Q: My husband has offered me our house as part of a property settlement. I have a job, but I’m concerned about maintenance costs. What should I do?
A: Make sure you can afford to maintain your home before accepting it as a part of the divorce settlement. List your monthly income, including alimony and child support, and estimated household and other expenses.
If you can’t cover your expenses, think twice before taking the house. You may want to consider selling the house and using the cash as income. Remember, the owner will pay capital gain taxes if the property has increased in value. Try to distribute assets on an after-tax basis.
Q: What kind of insurance changes should I make after divorce?
A: You will probably want to change the beneficiary of each insurance policy. Also consider policy amounts. You may need to decrease or increase amounts, depending on your new insurance needs.
If you’re receiving alimony or child support, think about buying a life insurance policy on the life of your ex-spouse.
You should be the owner of the policy, while your ex-spouse pays the premium until the child support obligation ends. Disability insurance is also important. If your ex-spouse is hurt or ill and unable to work, insurance will help him or her make alimony or child support payments. In addition, you should consider changing the beneficiary on trusts, pensions, wills, etc., and changing names on bank accounts and credit cards.
J. Thomas Grantham Jr., CPA, CFP, PFS, ABV, is president of Grantham, Randall, Arrington & Co. in Jackson.