What not to do when negotiating a divorce settlement

On Behalf of | Feb 10, 2022 | Divorce |

If you are contemplating a divorce, it is important that you consider the potential financial implications of doing so before it becomes official. The state of Michigan is an equitable division state, which means that you can’t count on getting half of the marital estate in a final settlement. It’s also important to consider legal fees, court costs and other expenses that you might incur by making decisions based on feelings instead of facts.

Consider an asset’s true value before accepting it

It’s easy to believe that a home worth $100,000 has the same value as an IRA that has $100,000 inside of it. However, the truth is that you’re likely better off taking the IRA as opposed to the house. This is because the IRA will appreciate in a passive fashion while the home will only retain its value if you properly maintain it.

Don’t liquidate assets before the divorce is final

Liquidating an IRA or 401(k) before your divorce is final could trigger a taxable event. Furthermore, you’ll need a qualified domestic relations order, or QDRO, to divide a 401(k) without incurring a tax bill. This tells the plan administrator that a withdrawal is pursuant to a divorce, which means that it can be completed without penalty.

Ending a marriage can result in a number of intended and unintended financial consequences. Therefore, it may be a good idea to consult with a financial adviser prior to initiating the divorce process or accepting a settlement in your case. Doing so may enable you to maintain your progress toward retirement or otherwise meet your short-term and long-term fiscal goals.