Fair Divorce Settlement
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It has been observed that both divorcing partners feel that a divorce settlement is fair enough for them. However, as the years pass by new problems prop up and the spouses feel that the divorce settlement does not work for them. In order to avoid this scenario, it is essential to consider some of the factors mentioned below.
Importance of Liquidity in a Fair Divorce Settlement
If a divorcing partner desires that the divorce settlement should be fair enough, the first point to be ensured is whether the assets received as sufficiently liquid.
Liquidity indicates how quickly the assets can be transformed into cash. For example, a vacation home is not very liquid or "illiquid." Time is required to sell this home and obtain cash. However, a checking account is very liquid. A simple withdrawal would result in cash.
A divorce settlement should not be done in such a manner that one of the spouses receives all liquid assets and the other all illiquid assets. If an individual who receives a house, this person must think whether his / her pay is sufficient to cover the mortgage. When a person receives a checking account, he / she must verify if they have enough value for living arrangements or transportation.
In a nutshell, both spouses must plan to ensure survival post divorce.
Significance of Taxes in a Fair Divorce Settlement
There are 3 major tax regions that must be contemplated properly. They are alimony, income tax and capital gains.
Capital gains taxes are those that are charged on the profit of a sale of a capital asset. Some partners agree on a divorce settlement that has identical face value of the assets. However, in reality, it may happen that one item has appreciated more than others. Due to this the taxes required to be paid by these spouses would differ. If one of the spouses is subjected to a larger capital gain tax, the overall economical advantage from its sale is decreased.
Alimony is calculated as a deduction for the payer. Similarly, it is taxed as regular income for the payee. So, this plays a crucial role in calculation of income tax.
The filing status has gained importance as it can alter the deductions. Assume that a couple was in married condition on 31st December of a particular year. Then, they are permitted to file jointly.
Role of CDFA in a divorce settlement
A CDFA is a Certified Divorce Financial Analyst. This professional is expected to work as a neutral financial expert. As divorcing spouses are emotionally attached to their assets involved in a divorce settlement, they are in need of a neutral person like the CDFA.
The crux is that this CDFA offers a clear scenario to both the spouses regarding the value of their assets in the present condition and in the future. He can also gauge the projected future economical requirements and ensure that the needs of the parties presently and in the long term are met with. The CDFA can predict how the divorce settlement would affect both the spouses after say, 5, 10 or 20 years.
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