When a spouse is going through a divorce, they often not only worry about the impact on their children, but also a closely related issue of their financial situation. Much of the stress is a fear of not knowing what will happen once the divorce is final. A focus on your finances is important as it can give you a sense of some stability post-divorce.
While this moment in time is clearly difficult, you can make it easier with some strategic financial planning.
You need to remember that focusing on your financial matters during the divorce can have a dramatic impact on the rest of your life, including the well-being of your kids.
In order to make this planning easier, you can start by breaking down your financial situation into some main categories:
- income,
- expenses,
- assets,
- liabilities.
While there are also other financial matters to consider when getting divorced, you need to make sure you have a clear understanding on these main categories can impact your life.
In order to give readers a better understanding of what you should know about financial issues during a divorce in California, our Los Angeles family law lawyers are providing a detailed review below.
Review Financial Assets in a California Divorce
In order to get started on the considering the financial situation during your divorce, you should take a close review of your financial assets that include:
- cash on hand,
- checking and savings account,
- certificates of deposit,
- real estate,
- retirement account,
- pension plan,
- mutual funds,
- savings bond,
- stocks.
If you are considering a divorce, these assets listed above are especially important to the spouse who makes less income and will need to use these just to help cover daily living expenses.
It's important to note that not all assets have the same tax consequences. For example, if you want to have access to some retirement assets, you will have to pay income tax on any distribution you receive, and maybe even have to pay a penalty.
Pension plan
You should also take a close look at how any pension plan will be divided between you and your spouse. Typically, the terms in a pension plan will call for a percentage of the retirement benefit at the time of the divorce.
It's important for the pension agreement to specifically list whether a divorced spouse will receive survivor benefits in a situation where their spouse dies. Clearly, the assets listed above are not a complete list as there are often several other sources of assets.
Dividing The Real Estate After a Divorce
In most California divorces, the biggest shared assets and mostly negotiated are directly related to real estate, which includes:
- marital home,
- vacation property,
- commercial or residential rental property,
- business property, and
- timeshares.
Clearly, the marital home normally has years of cherished memories and is frequently the most difficult asset to negotiate because of the strong feelings toward the home.
This is where your children grew up and letting it go is difficult for most. The big question on what happens to the real estate after a California divorce is when was the property purchased.
If one spouse bought the property before the marriage, it could be considered a pre-marital asset, known as separate property, belonging to that spouse.
However, if the property was the home where the both spouses lived while married, then the property could be considered a martial asset to be divided equally between the spouses, known as community property.
If you agree with your spouse that marital home should be sold, then you should consider:
- who will pay all the daily expenses until it's actually sold, and
- how the proceeds from the home sale will be divided.
As stated, any property purchased during a marriage, or for marital purposes, is typically an asset of both spouses and the value must be fairly divided.
Child Support and Spousal Support and Taxes
Another major financial issue to consider during a California divorce deals with child support and spousal support, which is known as “alimony.”
If you receive spousal support in California, you will have to pay taxes on what you receive as it's considered income.
If you are the spouse paying alimony, you will see a reduction in your income and you can deduct the money paid federal income tax return. On the other hand, California child support is:
- not taxable to the spouse paying it, or
- to the spouse receiving it.
Child support is typically calculated using a formula, but there is some flexibility for negotiation for a spouse claiming need.
The most important thing to consider is that you should settle these two main issues through negotiation, rather than taking it to a family law court to decide.
Don't depend on a California family court judge to make these decisions as you will often be disappointed at the outcome. Consider negotiation with your spouse and use a mediator if necessary.
Child Custody Financial Issues
If children are involved in your California divorce, you will have to several issues related to finances to figure out:
- if you will have joint, shared, or sole child custody:
- if your children will be staying here or moving out of state;
- how much, if any, child support you will need to care for them.
Obviously, your children are a top-priority and far more important than just another financial discussion during a divorce, but as all parents know, raising children is very expensive.
Their basic needs, such as medical care and education will play a main role in how you manage the financial situation. You should have a discussion with your California family law attorney to give you a better understanding about your options.
For example, if you are the non-custodial parent and will be paying child support, then you need to get information from your lawyer about visitation time with your kids.
Typically, the family courts want both parents to share custody and remain involved in the children's lives equally.
It's always best to reach a mutual agreement with spouse on child custody, visitation, and all the related financial issues. Don't force a family court judge, who is a complete stranger, to make life-long decisions for your family.
Divorce Lawyers in Los Angeles for Help with Financial Issues
When you are going through a divorce in California, you must take the time to evaluate your assets, liabilities, income and expenses. With this knowledge, you can reduce your stress level during this difficult period in your life.
With all these changes that will happen after the divorce, you will have to thoroughly consider how your life will be impacted and how to rebuild finances. For example, due to your financial situation, you might be forced to:
- move from your expensive home to a more affordable apartment;
- seek a second job or other sources of income temporarily;
- seek financial help from your family.
When you are going through a divorce, it's often overwhelming due to the vast number of changes that include finances.
When children are involved, it will typically play a major role is how you financially plan for the future. Keep in mind that even though you are getting a divorce, it's doesn't automatically mean your financial situation will turn into a disaster.
With some advanced planning and education, you can often avoid any major financial obstacles associated with a divorce.
Furman & Zavatsky are Los Angeles divorce and family law attorneys who represent clients throughout Southern California, including LA County, Ventura County, Orange County, Torrance, Santa Barbara County, Riverside, San Bernardino, Santa Monica, and West Hollywood.
Our office is located in LA County in the San Fernando Valley area at 15821 Ventura Blvd #690 Encino, CA 91436.
Contact us for a free case evaluation at (818) 528-3471.