Eleven financial strategies to consider during your divorce

1) IRS rule 72(t) allowing hardship withdrawals without the 10% penalty from 401(k) plans during divorce can help cash flow problems during dissolution proceedings;

2) The Government Pension Offset and Windfall Elimination Provision are federal Social Security rules that often unexpectedly reduce Social Security retirement benefits in divorce situations and may cause inequity;

3) An apples to apples comparison may not be possible for before tax and after tax dollars from an individual brokerage account versus an IRA. Agreeing to an equal offset of accounts with different tax ramifications may result in inequity;

4) Comparing the present value of a currently available liquid asset such as a savings account versus the future value of a non liquid asset such as a pension may result in inequity;

5) Child contingency and Alimony recapture laws are hard to analyze and often missed in setting support awards but can cause unexpected tax ramifications of great magnitude if left without review;

6) Unrealized capital gains that may cause future taxes should be included in estimates of value when considering asset division. Agreeing to a division where each party receives an asset of equal value but one has a large capital gain built in will result in inequity;

7) Dependency exemptions and tax filing status may have real cash value now and in the future and can be used as bargaining chips for financial settlements;

8) Life insurance placed as security for support payments should be positioned before a final settlement is reached to ensure a policy will be available with an efficient cost structure;

9) Qualified Domestic Relations Orders necessary to divide retirement plans should be drafted and approved by the plan administrator prior to the divorce being final to avoid delays common post divorce;

10) Always consider alternative dispute resolution models if available. Alternative models such as Mediation and Collaborative Divorce can save the family thousands of dollars and months or years of emotional turmoil.

11) Consider the advantages of deferring capital gains taxes on real estate assets by using a 1031 exchange or converting a rental property to a primary residence for tax purposes.

Justin A. Reckers can be reached at:

Telephone: 858-509-2329
E- Mail: jreckers@pacdivorce.com

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