During a divorce, your financial future could depend on how you divide assets between you and your spouse. Keep in mind, this is not legal advice. However, dividing assets could affect your upcoming taxes and further effect your retirement accounts as they mature. You might even find your divorce could influence future generations. Here is a brief discussion of three phases of your financial future and the strategies you might take to secure them.
Preparing for the Upcoming Tax Year
One of your immediate financial concerns surrounding divorce would probably be the tax ramifications for the coming year. It is important to seek out new and relevant information on this subject, especially now. The Tax Cuts and Jobs Act of 2017 changed several areas in divorce, including the details of claiming children on returns and taxes on spousal support money.
Dividing Long-Term Investments
IRA or employer-matched 401(k) or 403(b) accounts are probably among the first things to come to mind when you think about your economic future. These types of accounts have several different properties. For example, they have various contribution restrictions, allow tax benefits on maturity and penalties for early withdrawal.
However, some of the general rules may not apply to your divorce, potentially allowing options such as cashing out your part of your spouse’s 401(k) without incurring the tax penalty for pre-retirement access. However, there could be other tax concerns. For example, you could have to pay more tax if the funds from your spouse’s 401(k) increased your taxable income above a certain level.
In Illinois, upon the dissolution of your marriage, it is possible some types of retirement accounts can be divided with your spouse – even if you started contributing before the marriage. You might keep the portion you saved before marriage and divide the portion you accrued postnuptially.
Other employment benefits, such as stock options, might also require division – depending on the circumstances. It is often wise to take a data-driven approach, starting from the potential tax burden, current valuation and legal ownership of these and other complex assets.
Planning for Future Generations
If you intend to start a new family, you may want to ensure your children from your previous marriage have access to the possibility of inheritance. From a financial standpoint, there are many ways you could potentially reach a balance between your previous family and your new one. For example, a comprehensive endowment strategy could involve a combination of legal estate planning tools like trusts, as well as financial options, like life insurance policies.
Securing Present, Future and Posterity
With the right focus, it is likely you could arrive at a set of property division solutions designed to secure your immediate financial future, preserve your retirement savings and safeguard your legacy. Developing a strategy that works for your portfolio will likely take an individual analysis. Please contact me today at (312) 621-5234 to schedule your initial appointment.
