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How to avoid expensive financial mistakes during divorce

For people in Maryland, divorce can be both emotionally and financially costly. Being aware ahead of time of some of the pitfalls can help a person avoid them. For example, some people may think they will feel better if they spend money on a big, expensive item. They might temporarily improve their mood, but they will then need to pay the bills.

Divorce may bring other bills as well, but people should research before they liquidate assets to pay them since there could be taxes. There might also be taxes and penalties on a 401(k) if the couple divides it and fails to use a qualified domestic relations order and to roll the distribution into an IRA. If the divorce is finalized after the end of 2018 and one person has to pay alimony to the other, there will be no taxes on the alimony. This also means the payer cannot deduct payments. People who are worried about paying alimony should not take extreme steps such as quitting their job in order to avoid it since this will only be more expensive in the long run.

Working with a financial planner to make a plan can help prevent many of these pitfalls. It may also help people better understand their financial situation and avoid mistakes such as keeping the home without being able to afford it.

People might make additional financial errors in a high-asset divorce. For example, although both spouses are obligated to disclose all financial information, one person might try to hide assets. If a couple decides that one will take certain assets and the other person will take others of equal value, they should be sure that they understand the after-tax value of those assets and other costs associated with them. An attorney may be able to assist a person with these issues during divorce negotiations.

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