• 26
  • August
    2010

Today's post will continue the previous discussion of steps that separating Colorado couples can take to minimize their exposure to potential divorce-related issues. As previously stated, careful consideration and thoughtful actions can help former spouses avoid major financial pitfalls and help ensure that the proper asset protection mechanisms are in place.

(Please see "Steps to Prevent Potential Divorce Issues - I" for more information.)

Post continued ...

4. Examine your debt

While you ultimately want to obtain financial independence in the wake of a divorce, it may not be that simple. Both you and your spouse are considered responsible for any jointly held debt, including credit card debt.

It simply doesn't matter if the final divorce decree states that your husband/wife will be solely responsible for paying off the debt.

"A divorce decree might say he gets all the joint credit card debt, but that's not going to get her name off of the account and that's not going to relieve her of responsibility if he defaults on them. What most people don't understand is the fact that a loan agreement or credit card agreement will not be trumped by a divorce decree," said CEO of the Institute for Divorce Financial Analysts, Fadi Baradihi.

If circumstances permit, you and your former spouse may want to consider paying down as much debt as possible in order to avoid any future issues. Furthermore, if you agree to keep your jointly held accounts open during the course of the divorce, it is important to make sure all payments are made on time. 

5. Consider tax consequences

When it comes to payment of spousal support and/or child support, it is extremely important to understand the applicable tax rules and regulations.

For example, the spouse who pays spousal support may generally deduct the amount paid from their taxes, while the spouse who receives spousal support must generally pay taxes as it is considered taxable income. 

(Please note, the IRS has declared that child support is not deductible and is not treated as income.)

You may want to consider speaking with an experienced legal or financial professional to learn more about potential tax consequences.

6. Review financial statements and other important documents

If you and your former spouse own a business or share significant assets, it is imperative to review your financial statements regularly. You need to be certain that your husband/wife is not misappropriating or mismanaging assets.

Be on the lookout for odd purchases made in the name of the business, dubious write-offs and unreported/underreported income. This is an extremely important asset protection measure.

As with the tax ramifications (see above), you may want to consider speaking with an experienced financial professional.

The following post is provided for informational purposes only and is not to be construed as legal advice.

Stay tuned for more in the next post from our Denver divorce blog ...

Related Resources:
  
• 10 Ways to Avoid Divorce Disaster (Bankrate.com)