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Common financial mistakes in a divorce

On Behalf of | Sep 27, 2017 | Divorce

When Texas couples get a divorce, there are a number of errors they should avoid during property division. One is keeping the family home. While this can feel like a way to get some stability during an unstable time, the upkeep on a single income may be unsustainable.

This mistake may happen when a person decides to keep the home in exchange for other assets of equal value. The problem is that this can be deceptive. While the value may be equal, the home will cost more to maintain than other assets.

However, other assets could be unexpectedly costly as well if people are not careful. For example, it is necessary to obtain a court order known as a qualified domestic relations order to split a 401(k). Without this, there will be taxes and penalties on removing money from the account. People should also be careful about other tax implications. If they decide to skip the QDRO and have just one person keep the 401(k) while the other keeps the checking account of equal value, this could be a bad deal for the person with the 401(k). That account is not as liquid, and if the person makes a withdrawal, there might be tax ramifications.

Even though Texas is a community property state, this does not mean every asset needs to be split 50/50, so a couple might consider arrangements such as these in which one takes one asset and one takes another of equal value. This is not automatically a mistake, but it should be done with a full understanding of the financial implications. For example, if the couple has several paintings, the person who is particularly interested in art may want to take those. Both people should keep in mind that the paintings may rise or fall in value and are not as liquid as some other assets.