Divorce can get messy. The longer you’ve been together, the more likely you’ve accumulated assets. Working with a forensic accountant can help you make smart decisions about how you’d like to divide your property—including the tax implications that arise.
Splitting your assets right down the middle may not make sense for your particular situation. If you’re not considering how taxes can affect your income, net worth and lifestyle, you don’t have a clear picture of the whole situation.
Working with a forensic accountant can shed light upon these issues:
- Real estate value: Will you keep the house or sell it and split the profits? Before the two of you decide, you need to consider everything from the mortgage payments to property tax, insurance and maintenance costs. It may not be worth it to keep the house if it means your entire income will be tied up in maintaining it.
- Allocation of separate property: What constitutes separate property, and to whom is it allocated? Depending on what you came into the marriage with—and in which states you acquired it—this can be a complicated proposition. California is a community property state, which generally means that anything acquired during the marriage belongs to both spouses. Certain exceptions do apply.
- Investment accounts and long-term capital: When it comes to taxable investment accounts, your forensic accountant can help you figure out the best way to divide the property. This could include cashing out the accounts and selling it (which could have steep tax consequences), dividing the shares themselves or another equitable solution.
- Health insurance: When health insurance is tied to one spouse’s employment, the insurance usually stays with them. However, depending on the policy, the length of your marriage and whether you have children, other provisions may be available.
- Social Security and life insurance: Once you reach age 62, are unmarried and were married to your former spouse for 10 years or more, you can claim benefits from their Social Security. Some former spouses also take out life insurance to protect those benefits.
- Your child’s college savings account: When deciding how to protect your children, keep in mind that their 529 college savings accounts may be considered marital property. Ask your forensic accountant to evaluate whether “owning” the accounts until they’re of age will impact your taxes or your child’s potential for receiving financial aid. Keep in mind that you will have to sign special documentation to transfer ownership of the accounts, due to your divorce.
Ultimately, each couple will have specific and unique challenges. When you’ve been married for decades, it can take a skilled forensic accountant to fully disentangle your assets. They’ll also be able to advise you about the potential tax consequences to your proposed property division.
Although divorce can be a painful and messy process, having the right help is key. Call Medina & Company Consulting, Inc. for help with your divorce accounting.