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Financial steps may help those going through divorce
Getting divorced can be one of the most stressful experiences of a person's life, as the process involves both financial and emotional challenges. Many people spend a great deal of time planning their weddings but fail to take the necessary steps to prepare for a possible divorce. By investing time in the preparation process, people in Illinois may be able to avoid major negative financial consequences.
First, it is important for people to protect their beneficiaries. This can be done by reviewing college-saving and retirement plans along with insurance policies to figure out what has to be changed in order to protect minor children. If one decides to name children as beneficiaries, one might choose a guardian other than one's future ex.
It is additionally wise to be discreet when contacting people who are in charge of managing the family's money. This is because if one person speaks to financial professionals, accountants or attorneys who are used jointly by the person and his or her spouse, these professionals might have a professional obligation to tell the spouse about the discussions the other person had with them. Furthermore, it is expedient to figure out exactly how much money one will need to live on while going through the marital separation and following the divorce. This is necessary to avoid racking up debt that one cannot afford.
Divorce can impact retirement plans for Illinois residents
Divorcing a spouse late in life can quickly shred an Illinois resident's retirement plans. Unfortunately, it is an experience that an increasing number of people are having, with the divorce rate among people age 50 or older doubling from 1990 to 2010. During this same period, the overall divorce rate remained flat.
One way for people to protect their retirement plans is to sell their homes. Although staying in the family house might provide some stability during a divorce, it may take away a person's chance to increase his or her retirement income. If two divorcing individuals decide to sell their home, one of the individuals may decide to use the money from the sale to create a larger diversified portfolio that generates income for him or her.
It is also important to set values on assets such as insurance policies, pensions and IRAs, as well as to determine what one's long-term needs are financially. Financial planners can be immensely helpful in this area. It is additionally wise to revisit one's beneficiary designations and estate documents. Even if the beneficiary of a person's investment account does not change following a divorce, the documents may still have to be re-executed to reflect the divorce.
Gray divorce remains on the rise
It is becoming increasingly common for people to get divorced after having been married for 20 or more years. Getting a divorce later in life in Illinois is known as going through a gray divorce. In fact, a quarter of divorces in 2010 were gray divorces, meaning divorces involving people 50 years old or older.
One of the main reasons cited for gray divorces is that older couples simply grow apart. There is usually not a sudden trigger or event leading to a gray divorce, but, rather, it usually happens slowly over a period of time. Often, the woman feels as though she has given up too much during the marriage, such as by staying at home and putting her career side to raise the kids. Divorce gives her the opportunity to finally live life on her own terms.
Other factors that may contribute to gray divorce are the ages of the married parties. A huge age difference may not have been a major issue at the start of a relationship. However, it may become an issue years later, as people who have become middle-aged crave new beginnings.
Financial decisions during divorce have future consequences
An Illinois divorce is a major emotional experience, but it also has financial repercussions. As two individuals divorce, housing and other living costs typically increase. They must also deal with the division of their assets, which may impede both of their progress toward funding long-term goals, including covering the cost of their children's education or their retirement.
The division of assets is one area requiring careful attention during the divorce process. It is particularly important to consider the taxable status of an asset; for instance, a brokerage account of $100,000 may be more valuable as compared to a $100,000 retirement account that is tax deferred. For the brokerage account, one will simply pay tax on the capital gains or the dividends. Meanwhile, income tax must be paid on any withdrawals made from the retirement account. These are important factors to consider when dividing these types of assets.
It is also important to examine how decisions made during divorce may impact one's taxes in the future. For instance, while child support is not taxable, alimony received is treated as ordinary income by the IRS. This might change a person's tax preparations as well as the amount owed to the IRS.
Saving money during divorce is possible in Illinois
Divorce can be a highly challenging experience, particularly the effect it may have on a person's economic status. Although billionaires often have the ability to survive the divorce process, middle-class individuals can quickly watch their financial positions be turned completely upside down. A couple of tips may help people in Illinois save money during divorce.
In Illinois, the equitable distribution approach to divorce is used. With this approach, courts are permitted to consider the total amount of income that was brought into a divorcing couple's household by each party during their marriage when making property division and asset distribution decisions. Different types of assets, such as the family home as well as retirement accounts, must be divided.
When negotiating the division of retirement accounts in particular, a qualified domestic relations order can prove helpful. This court decree names another person, such as a former spouse, to be a recipient of one's retirement assets. If the decree is prepared appropriately, any funds removed from one's retirement account will not be subject to the federal income tax penalty assessed for the early withdrawal of retirement funds. The money can be transferred to the ex-spouse in many small payments over time or in a lump sum.
Prenup can help in the event of divorce for multiple reasons
Prenuptial agreements have become increasingly common in recent years. This is especially true in the cases of blended families or second marriages, or for people who wish to protect businesses, inheritances or family gifts. Prenups are valuable during the divorce process in Illinois for a few reasons.
Many individuals today are still hesitant about getting prenups because they fear pushback from their partners or family members. They also fear disclosing information to attorneys, dealing with unresolved relationship issues or revealing embarrassing financial choices. However, one good reason to get a prenup is that it helps two people before they get married to determine both alimony and property settlement payments in the event they get divorced.
When a couple gets divorced in Illinois, their property is usually divided under the state's laws. However, a prenup essentially makes these laws inapplicable, substituting the prenup's terms. Couples can come to an agreement in advance about what will make the most sense for them.
Financial mistakes during divorce can be detrimental
Divorce can understandably be financially complicated, which is why it is not uncommon for people to make serious errors during this type of family law proceeding. Unfortunately, these errors can be costly down the road. A few tips may help people avoid making detrimental mistakes during a divorce in Illinois.
One of the biggest mistakes that divorcing individuals make is that they do not understand how taxes will impact their settlements. Taxes have an effect on the value of any property one receives as well as on the quantity of support one will get or pay. Knowing a settlement's tax implications may help one avoid being surprised by a huge tax bill following a divorce.
Another mistake people make during divorce is that they fail to think long term. It is paramount that people negotiate support agreements that will enable them to live comfortably following their divorces. People would also be wise to plan financially for the period when support ends up running out. It is expedient to know how long one will receive or pay support, whether this amount can be modified and whether or not it will be extended at some point for any reason.
Divorce at the beginning of year has benefits
With the New Year in tow, many people in Illinois may be feeling a renewed determination to chase after a healthier and happier life. For some individuals, this may mean finally getting divorced and moving on with their lives. Initiating a divorce during this time of the year has many benefits.
First, the holidays are over, so a person does not have to worry about juggling a divorce proceeding with the stresses associated with end of the year festivities. These stresses include shopping, decorating, traveling, attending ceremonies and planning. In addition, waiting to get divorced after the holidays can prevent them from being unpleasant for the person's children.
Another benefit of getting divorced at the beginning of the year is that people's year-end incomes have already been documented as well as deposited. If a person initiates a divorce prior to the start of the year, his or her spouse might arrange not to get his or her annual bonus in December and instead put it off until after the couple's divorce has been finalized. In that way, the spouse may not be required to share the bonus; on the contrary, if the bonus were to come before the start of the new year, it would be subject to property division in the divorce.
Child custody, finances may cause tension during divorce
In addition to facing the emotional hang-ups associated with divorce in Illinois, people going through the process must also deal with the financial challenges that come along with it. Addressing financial matters is especially stressful for divorcing individuals who have children because the children depend on their parents for support, and the divorcing couple is likely dealing with child custody matters at the same time. However, a few tips may help people plan their finances in a manner that will benefit both them and their children long after the divorce has been finalized.
First, it is important to prepare for the worst financially. This is particularly true for those whose divorce processes have not been amicable. A soon-to-be-ex may not be generous and compassionate if the other hits hard financial times, even if the other ends up having primary custody of the kids. In addition, a person getting divorced would benefit from educating himself or herself on principles related to retirement plans, taxes, insurance and house mortgages.
Mistakes can be financially detrimental during divorce
Going through the divorce process can have a major impact on a person's finances in Illinois. Unfortunately, making missteps may make this type of family law proceeding even costlier. Several mistakes may be avoided during divorce with the help of proper legal and financial guidance.
First, it is important to closely examine all assets that are jointly held. Assets about which a person does not know cannot be factored in during negotiations for a just settlement. It is wise to look not only at current non-monetary assets and accounts but also to look carefully at future interests, such as start-up business stock options, business interests or pensions.
Paying attention to taxes is another important part of navigating the divorce process. For instance, a spouse who is getting a $500,000 house faces different tax burdens should he or she decide to sell the home than does a spouse getting distributions from a $500,000 IRA, especially over a period of time. Taxes have a significant impact on an asset's true value in the end.
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