Illinois residents who know that they will have to split a complex set of assets during a divorce have good reason to be concerned about the financial implications of the division. However, the things to think about are not just related to who gets what in terms of making sure each person receives what may be considered fair. This is because what constitutes fair is not just about the assets but about what taxes may be assessed on things once divided.
People who decide to sell their homes during a divorce should check with their attorneys on homestead exemptions to learn if a home sale is actually in their best interest. Retirement accounts are so commonly split today but not without potential pitfalls if the right process is not followed. Qualified Domestic Relations Orders should be utilized for accounts like 401(K) funds. Other accounts like Individual Retirement Accounts do not need the QDRO but spouses should never just take money out. Instead, distributions should be handled as rollovers to other accounts.
Another area that requires great care is the division of stocks, bonds and other assets. Both the original purchase price and the current market price should be factored into which spouse receives which asset. Finally, the other big tax ramification during a divorce can be who gets to claim the kids as deductions on returns. These are just some of the things that should be carefully outlined in a divorce settlement.
Illinois spouses may want to consult with an attorney before finalizing any agreement during a divorce in order to be sure that they understand the long-term effects of a settlement.
Source: Huffington Post, “4 Hidden Tax Issues in Your Divorce,” Stann Givens, June 13, 2016