When people in California get a divorce, each may be entitled to a part of the other's retirement account. This can have a significant effect on a person's retirement plans whether it is in a few years or further away. It is important to not become overwhelmed by emotion during these negotiations since they can be important for a person's future financial stability.
California couples who are getting a divorce may be aware that starting in 2019, tax laws around alimony are changing because of the Tax Cuts and Jobs Act. For divorce agreements finalized after the end of 2018, alimony will no longer be tax-payable or tax-deductible. This may mean the person who pays alimony remains in a higher tax bracket while still having to pay, and overall, it is anticipated that there will be less money for both people.
No matter how old individuals are when they get a divorce, it can be a process that negatively impacts them financially and emotionally. For California residents who are at least 50 years old, getting a divorce can be extremely difficult, particularly if they have had a long marriage and most or all of their assets are tightly tied to their future plans.
According to some experts, amicable divorces are actually more common among Californians with very significant assets. One divorce attorney said that wealthy couples with over $5 million in assets are more likely to achieve amicable settlements. However, upper middle class couples who still have substantial wealth but less than $5 million may be more likely to struggle over property division.
California couples who are ending their marriages might worry about what their futures might look like. By taking a realistic look at their finances, they might be able to avoid making costly errors during and after their divorces.
Regardless of who earned an income during a marriage, both parties have their own financial interests to tend to if the marriage comes to an end. California residents should look to open their own bank accounts, learn the basics of financial management and close all joint accounts as soon as possible. Doing so can help a person gain leverage in divorce settlement talks. It can also prevent any new joint debt from accruing before the divorce is finalized.
A 2016 survey of members of the American Academy of Matrimonial Lawyers found that retirement plans were the second most common topic of conflict in a divorce. In first place was alimony and in third place was business interests. California couples may have to face this issue when their marriages are coming to an end.
California couples planning a trip down the altar might also want to consider making contingency plans to safeguard against a failed marriage. The wisdom of having health and life insurance policies is unquestioned, and taking similar precautions regarding assets subject to future divorce litigation is becoming a more accepted way of thinking.
When California couples get a divorce, there are a number of tax considerations they should keep in mind. If the divorce was finalized by the last day of the year, the couple should file their tax returns separately. Couples whose divorce was not yet final, even if they are separated, may file jointly or as married filing separately.
Even though a California couple may divorce, one spouse could still be able to claim Social Security benefits on the other's earnings. However, the marriage must have lasted for at least 10 years. Also, the ex must have earned significantly more income than the spouse claiming spousal benefits.