Elaine Morgillo has an article on Seacostonline.com concerning issues that couples face as a result of a divorce. Some of which are custody, child support, visitation (parenting time) and spousal support or maintenance and finally division of assets.
In Kansas, some, if not most divorces are resolved by agreement between the parties and their attorneys. This helps the parties avoid the strain of expenses of litigation. In Kansas we have established guidelines for child support that take into consideration the incomes of both parties, the number of children who require support and what type of custody arrangement exist. We even have guidelines for spousal maintenance in the Johnson County Guidelines.
Ms. Morgillo further mentioned in her article some points that even those of us in Kansas should consider. One of the first lessons she points out is that equitable does not necessarily mean equal division of property. "A $100,000 IRA or 401(k) plan may not be equivalent to a house with $100,000 equuity. A $100,000 bank account is not necessarily equivalent to a $100,000 investment portfolio."
"Retirement plan assets are typically tax-deferred, not tax free. No tax is paid on the contributions, employer matching contributions or appreciation until they are distributed at retirement. At that time, the tax liability could be 25%, 30% or even more."
"When a house is sold, no federal tax is due on the first $250,000 of capital gain if the home served as your primary residence for two out of the last five years."
"Interest on bank accounts is taxed when it is earned. If you liquidate a bank account, there is typically no additional income tax liability.
An investment portfolio has a "cost basis" - the amount paid for each asset, plus the value of any reinvested dividends or capital gains. If the portfolio is sold, it will generate either a capital gain or a capital loss, depending on the difference between its liquidation value and cost basis.
Typically, spousal support is tax deductible for the payer and taxable to the recipient. Child support is usually not deductible to the payer or taxable to the recipient.
The family residence and retirement accounts are typically the largest assets of most couples. In a common scenario, when there are children still living at home, the custodial parent prefers to keep the residence, and as a result must give up his or her rights to other assets to equalize the asset division.
While this strategy appears to be equitable, the long-term effect can be disastrous. The home, most often, still has a mortgage, as well as property taxes and ongoing maintenance expenses, unlike a retirement or investment account that has little to no ongoing cost associated with it. If you wish to keep your home after a divorce, be sure you can afford to do so without jeopardizing your ability to accumulate sufficient assets for your children�s education or your own retirement.
When retirement assets are divided, it is absolutely essential to follow IRS regulations to avoid triggering immediate income tax liabilities and premature distribution penalties. A transfer of retirement accounts between divorcing spouses will avoid taxes and penalties only if accomplished with a "Qualified Domestic Relations Order" (QDRO), a process that "creates or recognizes the existence of an alternate payee�s right to receive, or assigns to an alternate payee the right to receive, all or a part of a participant�s benefits." (ERISA � 206(d)(3)(K), IRC � 414(p)(8).)"
These are only a few of the issues that typically arise when
negotiating divorce settlements. As you can see, it can be a
complicated process fraught with potential pitfalls.
To read the actual article go to Seacoastline.com. Even though the article is for Maine residents, the concepts do apply to those of us in Kansas.
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