Since the 1970s, divorces have been much more common in the United States than they were previously. Divorces raise legal issues such as possession of assets, custody of children, claims to income, and countless others
This is a short list of preparatory steps you can take to ensure that the ultimate outcome is as equitable and manageable as possible
Familiarize yourself with the applicable state’s divorce law. Different states have different approaches to property and liability ownership. Your attorneys are the professionals, of course, but it’s essential to know the basics, and better to have a deeper grasp.
- Run a credit report. This gives you a head’s up about any possible unknown debts your spouse has incurred without your knowledge.
- Take an inventory of tangible and financial possessions. This will need to be done eventually anyway, but the sooner the better in case the process leads to any surprises, such as long-dormant retirement plan or taxable asset accounts.
- Secure the most recent statements for all accounts, and appraisals for tangible property with any potentially significant value. One less obvious benefit to the appraisals is to smooth out the process of dividing possessions with sentimental value to one party that might also be thought to have economic value, but actually do not.
- Establish individual banking, investment, and credit card accounts in your name, to be ready for the separation of assets.
- Create a pre- and post-divorce budget. Assuming the couple isn’t operating under an up-to-date budget, creating a new, accurate one will establish the foundation for a prospective post-divorce budget that might include new expense categories, such as child care.
- Although the resulting picture might indicate that tightly restrained spending may be in your short-term future, the knowledge of what to expect — and that it will be survivable — can take some of the emotional strain out of the upcoming divorce process.
Decide What You Want From the Divorce
This is an important step. Think very carefully about what you want to ask for in your divorce.
Remember: The law requires you to raise all legal issues that you have against your spouse in your divorce complaint. Before you fill out the complaint forms, you must decide what other relief you want in addition to having the court end your marriage.
Looking at the information about finances and property will help you decide what to ask for in your divorce.
These are some things that you might ask for in your divorce complaint.
- Alimony/Spousal Support.
- Division of Real Property.
- Division of Personal Property.
- Division of Debts.
- Taking Back Your Former Name or Changing Your Name.
- Insurance Policies and Premiums.
Assignment of Estimated Tax Payments in a Divorce
One issue that is often overlooked is the allocation of estimated tax payments to the taxpayer’s and spouse’s income tax returns, when they file separate returns in the year of the divorce.
When a couple have filed joint returns in the past and file separate returns in the current year due to a divorce, estimated tax payments for the current year are typically credited to the first person listed on the previous year’s joint tax return.
According to IRS Publication 505, Tax Withholding and Estimated Tax, couples who have filed joint returns in the past and will be filing separate returns in the current year due to a divorce can divide estimated tax payments in any way they can agree upon. If an agreement cannot be made, estimated tax payments for the current year should be divided in proportion to each spouse’s tax as shown on their current year’s separate returns.
Overpayments on Past Jointly Filed Returns
The treatment of overpayments on past jointly filed tax returns is similar to the IRS’s guidance for estimated tax payments.
Since divorces are so common, the IRS and state taxing authorities need a better and simpler approach to assigning estimated tax payments and crediting overpayments from previous jointly filed tax returns. In any case, estimated tax payments should not automatically be assigned to the taxpayer who is listed first on the tax return. There needs to be a way to communicate with the IRS and state taxing authorities on this matter.