Main Menu Practice Areas
Barbara L. Jouette, Attorney, P.C.
888-268-7997 / 214-385-4562

Money mistakes to avoid during a Texas divorce

Although a divorce may be an emotional time in an individual's life, nothing should be overlooked from a financial standpoint. Making mistakes such as underestimating cash flow needs or the impact of joint liabilities can stunt a person's efforts to live a financially secure life after the marriage has ended. It is also important to look over prior tax returns to determine if any tax assets need to be considered in a divorce settlement.

An issue that should not be overlooked is the economic value of retirement accounts. Even though they may have the same amount of money in them, a Roth IRA or Roth 401(k) is always more valuable than a traditional retirement account. This is because the contributions to those vehicles are made after-tax and the money within the account will grow tax-free. Money inside of a traditional IRA or 401(k) is merely tax-deferred and income taxes will be paid on any funds withdrawn in the future.

For those under the age of 59 1/2, an early withdrawal penalty of 10 percent may apply if funds are taken out of a traditional IRA. To avoid a taxable event when transferring those assets during a divorce settlement, the decree should specify that it is being made incident to the divorce. Any transfer of part or all of the funds in an employer-provided retirement account will have to be made pursuant to a qualified domestic relations order.

The division of assets during a divorce may be a difficult issue to resolve. In some cases, it may take months or years to end a property division dispute. The advice and counsel of a family law attorney can be invaluable in the negotiation of a comprehensive settlement agreement covering those matters.

Source: Market Watch , "Divorce? The 6 worst money mistakes", Leslie Thompson, September 23, 2014

No Comments

Leave a comment
Comment Information