Taxes and Divorce

accounting for divorces, forsensic accounting

Unfortunately, for some couples, once the children are all grown, all that is left is two people who no longer have a reason to stay together. They might not be angry with one another, or have a big issue with each other, its just a case of not having much in common. And also not being willing to work towards a common goal. We see this more often these days in the baby boomers, than we ever saw it before. There are considerable life style and tax ramifications to a divorce, and if you are even thinking about such a thing, it’s a good idea to get all of your financial records together and come see us. Why mention it at this time of the year? Well, chances are you are already gathering everything up in order to prepare your taxes so why not kill two birds with one stone as they say.  Journal of Accountancy had some great advice on this subject:

“… CPA financial planners report their female clients are twice as likely to seek out financial advice after a divorce, find a job, and increase their savings toward retirement.

This lack of financial understanding that becomes evident during a divorce illustrates the importance of good financial practices when couples are married, according to Tracy Stewart, CPA/PFS, a member of the AICPA Personal Financial Planning Executive Committee. She said it is imperative for couples to establish open and regular communication about their financial life together, to share their plans for retirement, and to agree on their approach to saving and spending.

These same conversations also should take place at the beginning of the divorce process, Stewart said.

“Better yet, a partner seeking a divorce should see a CPA financial planner before they even start talking about it with their spouse,” she said. “The unfortunate truth is that the process of dividing assets is a lot more complicated than saving and investing. A divorce often means calculating spousal support or child support, making sense of pensions and investments, and deciding what to do with the house. Until you understand exactly what you have, you can’t make an accurate financial plan for the future.”

A majority of CPA financial planners participating in the survey said the following steps would have helped their clients who are near retirement age be better prepared for divorce:

  • Understanding how to manage personal finances (76%).
  • Understanding the long-term financial planning consequences of a divorce settlement (73%).
  • Understanding the tax implications of a divorce settlement (57%).
  • Updating wills or trusts (51%).
  • Increasing saving for retirement (51%).

Just over one-third (36%) of planners said establishing a prenuptial agreement would have better prepared their clients financially for divorce.

There are three components to a divorce—legal, financial, and emotional, Stewart said. She said the legal aspects of a divorce are complicated, and the emotional upheaval is huge. The financial aspect is challenging because at least one partner may not have a good understanding of the family finances, including retirement savings.

“When happily married couples are making decisions,” Stewart said, “they very rarely consider what would happen in the event they divorce.”

– See more at: http://www.journalofaccountancy.com/news/2017/feb/golden-years-divorce-shows-need-for-financial-literacy-201715987.html#sthash.InFjOVVy.dpuf

 

Pete DiSalvo

CPAMelbourne - Titusville - VeroBeach - Certified Public Accountant

 

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