Negotiating a final settlement in a divorce is usually a very stressful time for all parties: the husband, the wife, the children, and both attorneys. Despite the tension and delicacy of the issues, it is important not to lose sight of something very important. It is critical to start thinking of the future for the ex-husband, ex-wife, and the children.
Income Taxes
It is very important to start considering the tax consequences to all parties immediately. Tax filing statuses, brackets and exemptions have changed, and it is imperative to consider the effect on all taxpayers. The divorced couple has gone from a Married Filing Joint or Separate (MFJ or MFS) status to either a Single or Head of Household status and the applicable tax tables have changed significantly. The payor of alimony is entitled to a new above the adjusted gross income line deduction and this may lead to an adjustment of his/her withholding requirements. Or, if the payer is self employed, the alimony deduction may decrease the size of his/her estimated payments.
The recipient of alimony is now receiving income where there is no tax being withheld. It is probably necessary for that party to start making quarterly estimated tax payments.
Insurance
It is very important to make sure that the parties have the proper type and amount of insurance in place. After the divorce, is your client covered under a health insurance policy? If not is COBRA available, or is it time for your client to be added to coverage at his/her place of employment? If that option is not available, is it time for your client to obtain an individual policy? The types of policies and coverage vary significantly so your client should review this with someone experienced in the insurance industry.
Is disability insurance needed or warranted?
Is your client’s automobile still insured? Is it time to review this policy?
Is your client’s home and personal belongings properly and adequately covered? It is advisable for your client to meet with both his/her personal and property and casualty insurance advisors.
Wills
After the divorce, your client needs to update his/her will. Not only do changes have to be made regarding the distributions to heirs, it is critical to consider the issue of who should be the guardian of the children should the parties die prematurely.
Beneficiary Designations
It is necessary to update the beneficiary designations under any retirement plans and life insurance policies as soon as possible.
Meetings As Soon As Possible
It would be advisable for your client to meet with the following people :
- Family Attorney
- CPA
- Insurance Broker
- Head of Human Resources at the company where your client works
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