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Financial issues in a divorce

On Behalf of | Dec 31, 2021 | Blog, Divorce

Property division issues are usually among the most contentious in a Texas divorce, even though the jurisdiction is a community property state. Nonetheless, divorcing couples must still deal with a number of financial hurdles that they must cross to resolve the divorce. Here are some of the common financial issues.

Tax issues in a divorce

When the couple has property to divide, they may have an unexpected tax bill. Theoretically, this tax bill belongs equally to both of the spouses. However, it must be accounted for in the property that is divided. Tax accounting can be challenging, especially when one spouse held the asset before marriage, and it appreciated in value. Usually, the parties will divide cash differently to account for the fact that one may have a tax bill from community property. Alternatively, they may make swaps in other assets.

Dividing the retirement accounts

Another common financial issue is retirement accounts. Again, the community property rule is that the spouses split the accounts 50/50 between them. However, both may have had their own retirement accounts before the marriage. There may be some difficulty in determining what is considered separate property. Then, both would need to figure out how much the property appreciated during marriage because that is part of community property. This could require forensic accounting to determine values of property at certain dates.

If you live in a community property jurisdiction such as Texas, you should strongly consider a prenuptial agreement before the marriage. This would save you from having to deal with some of the more difficult financial issues in a divorce. If you and your spouse have a high net worth, you can expect that resolving distribution of property issues will take some negotiating, and it will be stressful.

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