When couples with considerable assets face divorce, the stakes are usually high for each individual and could result in serious financial strife in the future. CNBC notes that in the past year, the rate of divorce-related loan applications spiked to more than 50% as divorcing individuals find themselves in debt.
Those who want to protect their finances during a high-asset divorce can take several steps to do by avoiding some common errors during and after the process.
1. Poor reviews asset values
When both individuals in a dissolving marriage hold multiple types of assets, it is important that each reviews the actual value of both tangible and intangible items. While the cost of the item versus its current value is one way to calculate this, some assets, such as stocks and cryptocurrency, may hold a higher or lower value than an equal amount of cash depending on stock market fluctuations.
2. Miscalculating tax rates
Some assets may vary in value because of the taxes involved. For example, if two assets appear to have an equal value, one may incur a higher tax charge, which changes its overall worth. The duration of ownership of an asset can also affect its value and the resulting taxes. Divorcing individuals often fail to subtract those taxes from the value of the asset, which can affect the total amount when courts divide it.
3. Misunderstanding withdrawal penalties
When courts divide assets such as retirement accounts, divorcing individuals often fail to realize the types of penalties that may come with early withdrawal or whether an employer penalizes the account holder for withdrawing assets too early. Alternate options, such as rollover plans, may prevent these penalties.
Monitoring capital gain on any asset sold can also keep divorce costs low. This includes real estate, vehicles and small businesses.