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Beware the 9 Errors That Can Cost You a Fortune

Beware the 9 Errors That Can Cost You a Fortune

    Pensions are often the couple’s largest asset. Errors in dividing the pension can cost you a fortune. How the agreement and order dividing the pension are worded can make a huge difference in the amount of money each person receives from the pension.

    Tax assessments are not always a good indicator of value. Some houses are worth twice the amount of the assessment; for others, the assessment is a close approximation of value. It depends on the particular property. Don’t rely on the assessment. Get a market valuation from several realtors and/or from a real estate appraiser. Also give careful consideration to how the existing mortgage(s) will be handled, whether there will be an assumption or a refinance. These decisions can affect your credit and your liability, and can have tax consequences. Be careful in letting one person stay in the house for an extended time, with a plan to sell it later; make sure you have obtained tax advice from a C.P.A. about the handling of the mortgage payments; be certain to consider such matters as what will happen if major repairs are needed, if one person make substantial improvements to the house; if the person in possession lets the house run down or lets the mortgage get behind or fails to keep it insured.

    Pursue settlement opportunities at the earliest moment and don’t let the opportunities to settle get away from you. Thousands of dollars, sometimes ten of thousands of dollars, can be saved by making a fair settlement early on. Keep your costs down.

    Many cases fail to settle because of a different view of the facts. If you can’t agree on values, get appraisals made early to save thousands of dollars in legal fees fighting over values that can’t be resolved without appraisals. If you are not sure what assets exist, exchange financial affidavits with supporting documents voluntarily and save the cost of formal discovery in litigated case.

    Different assets bring with them different tax consequences. One party may get substantially less than his or her share of the assets because of a lack of understanding of the tax consequences. Also, payments of alimony or payments of the mortgage by a party not living in the house may have unintended tax consequences about which a C.P.A. should be consulted before the agreement is made.

    Alimony is normally taxable to the recipient and deductible by the payor, but that is not always the case. Be sure you have a C.P.A. review the wording of your agreement to be sure there are no unintended tax consequences. Watch out, for example, for agreements that change the spousal support amount when a child is emancipated, as it could affect the deductibility of alimony.

    Life insurance is a very tricky area because of the fact that there is a difference between what can be arranged for in an agreement and what the court can order if there is no agreement. Where alimony and child support are not backed by life insurance, the recipient is at risk. Where limitations related to the availability of life insurance at a reasonable price are not incorporated in the agreement, the paying spouse is at risk. Insurance availability and cost can change as time progresses. There are many aspects to agreements about life insurance that your attorney will understand.

    Most, if not all, health insurance policies only allow a spouse to be covered up until the time of entry of the final decree. Some even stop at the time of separation. Some employers fall under the COBRA laws that allow a separate policy to be purchased for a spouse for 36 months after the divorce, while others do not fall under COBRA. COBRA insurance is usually very costly. Pre-existing conditions are a concern when changing health insurance companies. An agreement for health insurance coverage after the divorce can be very complicated, and wording it incorrectly can be very costly for one party or the other.

    Don’t think that if you just keep paying the health insurance after divorce that your ex-spouse will still be covered. If your ex-spouse incurs major medical expenses under the policy and the insurance company then finds out there has been a divorce, the company can simply deny the claim even though you had continued to pay the premiums.

    Alimony is one of the most difficult areas in divorce. In a case where there is going to be some alimony, there are issues of how much, for how long, under what circumstances. Will the alimony be fixed and non-modifiable, or will it be modifiable by the courts based on changed circumstances? Will there be any change in the amount depending on circumstances such as payor retiring or losing his or her job or becoming ill or disabled or just deciding to go into another line or work or into business for himself/herself? What if an early retirement package is taken because of fear the job will be eliminated? What if the recipient becomes ill or disabled? What if the recipient inherits substantial money or gains new job skills or gets a new or better job? Failing to think about the variables and working out the best arrangements can be very costly.

    Sometime parents of young children agree to pay for their college without thinking of the changes that can take place in their lives and without realizing that once they make an agreement they can be held to it regardless of the changes in their lives and circumstances. While it is wonderful when parents want to provide for their children, they must be very careful how they do it.

    An agreement for parents to split 50/50 (or in any other percentage) the cost of a child’s college education binds each of them to pay for that regardless of whether or not they have a job or are disabled at the time, regardless of what college the child chooses and what it costs, and regardless of whether or not they can afford it at the time. The agreement is binding regardless of the relationship between the child and the parents at the time of college and regardless of whether or not the parents have other children to provide for. The court in Virginia cannot order a parent to pay for college unless the parent agrees to, and any agreement should be carefully worded and all of the terms spelled out. One of the options that some parents consider is buying prepaid college education packages and agreeing on how the cost will be paid if they are going to make an agreement about college. Others prefer to decide on college when the time comes.


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