Navigating a divorce is never easy. Even when couples separate on relatively friendly terms, there are some serious challenges and potential hidden pitfalls involved in dividing property and planning a financial future.
With emotions running high, it can be hard to stay focused on longer-term goals. However, it is important to keep in mind that decisions made during a divorce will likely have repercussions for years to come and may even negatively impact a final settlement.
- Overestimating the benefits of getting the house
Who gets the house is often one of the most emotionally charged questions when couples separate. That leads many divorcing partners to fight for ownership without considering the potential financial consequences. While an estate may be worth a great deal, a hefty mortgage payment or high maintenance cost may create an unrealistic burden. And, as of October 2018, while spouses may be able to exclude up to $500,000 of profit from the sale of a home, a single individual can only exclude up to $250,000.
- Spending sprees
The intense stress of divorce can lead to the impulse to indulge in retail therapy. From extravagant dining to purchasing a new car or taking a luxury vacation, making big purchases during a divorce can easily cause unexpected problems. In some cases, an individual may be taking on payments that she or he can no longer afford on a solo budget. Additionally, in Minnesota, a divorce summons automatically freezes major, unnecessary purchases. If the court finds that either spouse has tried to hide or waste shared assets, that may affect award outcomes and even involve extra penalties.
- Overlooking new spousal support tax laws
Marriages dissolved on or after January 1st, 2019, are subject to new rules involving alimony. In the past, the paying ex-partner received a tax deduction for payments and the supported spouse was liable for taxes on alimony. That is no longer the case.