For divorcing couples in Texas, financial planning for divorce has become more complicated since the passage of the tax reform law. Some changes could impact divorces that are finalized after 2019, making planning crucial.
Divorce is always a legal process that dissolves a marital relationship. However, some Texas couples may wish to avoid the expense and complications associated with extensive litigation. For these divorcing couples, divorce mediation can be an alternative to traditional litigation. It makes use of a third-party mediator, along with the lawyers of both spouses, to sort out key issues and arrive at a mutually acceptable and beneficial agreement. For divorces that involve child custody, mediation can often be court-ordered.
Texas couples who are getting a divorce and who need to split a 401(k) or another type of pension plan will need a court order called a qualified domestic relations order. This document, which should be prepared by an attorney and must be approved by the plan administrator, is necessary for making a distribution from these types of accounts without having to pay taxes or penalties.
The Boy Scouts' motto, 'be prepared," is a phrase that also could be applied to older Texas couples who are contemplating a divorce. The closer Baby Boomers get to retirement, the more likely many of them are to get divorced since the divorce rate for the over-50 crowd is on the increase.
When some couples in Texas get a divorce, they might have artwork to divide. There have been several high-profile divorces in which artwork created conflict during property division. For example, in a divorce between a real estate developer and his wife, a trustee of the Guggenheim and the Metropolitan Museum of Art, artwork by Picasso, Warhol and others were among those in dispute. One issue was the appraisal of the art's value, which differed by hundreds of millions of dollars. Another was figuring out who had paid for the art.
When Texas couples get a divorce, one of the parties might be able to draw Social Security payments based on the work record of the other. However, the couple must have been married for at least 10 years for this to be the case.
Texas couples should be aware that after getting a divorce, their tax situation will change as well. If the divorce occurred on or before the final day of the calendar year, people will not be considered married for that year. If the marriage is annulled, it will also be necessary to file amended returns for all the years of the marriage since legally speaking, the couple is no longer considered to have been married.
Retirement benefits accrued during the marriage by a spouse are subject to division when a Texas couple divorces. This can included amounts accrued by a federal employee in a Thrift Savings Plan.
When Texas couples are ending their marriage, they should consider the possible tax consequences before executing a settlement agreement. A case decided in U.S. Tax Court illustrated the importance of documenting all spousal support payments within a legal agreement in order to receive a tax deduction for the expense.
Texas couples who are ending their marriages may need to take stock of their financial situation and make plans for how they will handle those finances both during and after the divorce. It may be better to take advice from legal and financial professionals than from friends and acquaintances who have been through divorces before. Different situations may require different solutions.