Prepare yourself for the financial implications of a divorce in Illinois. Even prenups are contested. In a split, money matters are often the most volatile negotiation. Do your due diligence, walk through the law and grasp the technical aspects.
Here are several things to keep in mind regarding finances and divorce:
All assets are not equal
Assets can appear to have the same value, but factor in, say, taxes, and they’re not so equal. A stock valued at $100 is not the same as the $100 in your checking account. Tax greatly impacts stock. Take the sale price and cost basis (what you paid) and the difference between them gets taxed in short- or long-term capital.
Retirement accounts
A divorce can change the conditions of your 401(k). Your potential ex gets a piece of the retirement pie, but how you distribute funds matters. Taking money out to give your spouse puts a 20 percent tax withholding on you. On top of this, if you’re under 59 1/2 years, another 10 percent for early withdrawal may be applied.
The home
To avoid conflict, splitting couples may sell a property and divide the proceeds. Other couples may turn the property over to one of the spouses.
Does the property become joint-owned? Does the title need renaming? Will the loan require refinancing for the new owner?
You want to take advantage of a bigger capital gain. The cost basis of a property in a divorce needs an evaluation that reduces the deferred amount. If a departing spouse used the home for work, the cost basis needs lowering to reflect the depreciation. Both scenarios generally result in larger gains.
While no happy couple considers divorce, it may be practical to find out what might happen and the best ways both parties can protect themselves. The dissolution alone will be traumatizing. But, in a divorce, finances are dynamite waiting to be lit.
