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Financial mistakes that are common in a divorce

| Feb 13, 2019 | Divorce |

When couples in Texas are going through a divorce, there are a number of common mistakes they should try to avoid. One of those errors is failing to get paperwork in order. This might include Social Security statements showing the earning of both spouses, information on what was paid for various assets, account numbers and home improvement receipts. Some of this paperwork may be helpful after the divorce as well. For example, if the couple has been married for at least 10 years, one spouse might be able to draw Social Security retirement benefits on the other spouse’s income.

People should also avoid social media. Information shared there could become an issue in the divorce. However, people should not assume that litigation is an inevitable part of every divorce. A collaborative divorce or mediation may lead to a settlement for many couples.

Couples should cancel any joint accounts. Even if only one person runs up debt on a shared account, the other person could be held responsible. People should also be aware of tax implications related to the divorce. For example, a traditional and a Roth IRA might have the same balance, but the Roth IRA will actually be worth more since it is not taxed on distribution. There could also be taxes on home sales, stock and other investments.

Texas is a community property state. This means that unless there is a prenuptial agreement, all marital assets are supposed to be divided 50/50. However, there may still be room for creative solutions, such as having each person take certain assets of equal value. This could reduce costs ranging from a hefty tax bill to the expense of preparing a document called a qualified domestic relations order, which is necessary for splitting 401(k)s and pension plans in a divorce.

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