Are Divorce Settlements Fair?
A divorce settlement includes detailed information on the division of assets and debt as part of the divorce. Custody agreements that determine the primary custody and visitation arrangements may be part of a divorce settlement.
It is a common mistake for a divorcing spouse to agree to a divorce settlement just to end the process and move on. This can be a costly mistake. Many aspects of a divorce settlement can potentially be unfair.
A divorcing spouse should carefully consider each component of the divorce settlement with a lawyer. Before signing the papers, the divorcing spouses should understand how every aspect of the agreement will affect them.
Another potential problem in a divorce settlement is how the couple’s debt is resolved or divided. One spouse may feel that an unsecured loan is the responsibility of the other spouse if that money was used to the benefit of that spouse. Typically speaking, unsecured loans are in the names of the responsible party or parties.
Even if one spouse is willing to assume the responsibility for a loan, a bank will not remove the other spouse’s name from the loan unless the loan is refinanced. If both spouses names remain on the loan and one spouse is responsible for payment, if that spouse defaults on the loan the credit of both spouses affected.
Investments and retirement accounts can have long-term financial implications that one or more of the divorcing spouses may not understand. Someone going through a divorce may want to a consult an accounting or financial advisor if the divorce settlement includes a division of investments.
Many financial implications of divorce settlements may not be readily apparent. A divorcing spouse may assume that they receive the benefit of all the alimony that is paid to them. However, alimony is taxable which means the spouse who receives it must pay taxes when they file their income tax return.
Even if a divorce settlement seems totally fair, the divorcing spouse may be overlooking factors of the divorce settlement. For example, if a divorcing spouse needs a source of income and the spouse receives the primary residence in the divorce settlement, that spouse may feel that they have done well in the settlement.
A spouse who is awarded the home may have received more in equity in the home than the other spouse received in the divorce settlement. The spouse who receives a home may have difficulty pulling money from the equity of the home quickly. In order to do so, they often have to get a home-equity loan which requires the payment of fees and takes time.
