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Financial mistakes to avoid in a divorce

California couples who get a divorce must go through a process of property division. As they are doing so, it is important that they accurately assess the value of their marital property. This means looking at the cost of taxes and maintenance along with the value of each asset.

For example, one party might decide to keep the family home and have the other keep an asset of equal value such as a brokerage account. However, that person may have failed to account for the cost of maintaining the house. This can lessen the worth of the house and may also present problems for the person trying to maintain it on a single income.

Other errors may occur when people do not consider the limitations around withdrawing from retirement accounts. A person might keep a 401(k) while the other keeps a checking account that has the same amount of money in it. However, the person who gets the checking account can freely make withdrawals from it while the person who gets the 401(k) must pay taxes on any amount that is withdrawn. Furthermore, a 401(k) requires a document known as a qualified domestic relations order to avoid potential tax problems when it is divided.

In divorces involving significant assets, there may be additional aspects of property division to work out. For example, the couple might own one or more businesses. If they are jointly owned, they must decide whether to sell the businesses, continue to operate them as co-owners or have one buy out the other. Out-of-state or foreign real estate could add more complexity. There may also be collections that need be appraised before they can be divided. An attorney will take these things into account when negotiating a settlement.

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