Knowing ahead of time about some of the common financial mistakes people make in divorce can help people in Ohio avoid those mistakes. For example, some people might sell assets to cover divorce bills without realizing that there will be taxes to pay as a result of that sale.
Another tax-related mistake is not realizing that certain steps must be taken in dividing a 401(k). To avoid tax consequences and penalties, a distribution must be done with a document called a qualified domestic relations order, and the distribution has to be rolled into a 401(k). If the divorce is finalized starting in 2019, there will not be any taxes on alimony payments. However, this also means that those payments will not be tax-deductible for the payer, so the recipient might get less money overall. People should not quit their jobs to avoid alimony payments. This will cost them more money than making the payments over the long term.
Working with a professional to create a financial plan may help a person better understand the financial landscape. This would help prevent a mistake such as keeping a home with an unaffordable mortgage and upkeep costs or spending too much money on big-ticket items in an effort to feel better about the divorce.
People should keep all of these points in mind as they negotiate property division. For example, during negotiations, some couples decide that instead of splitting some assets, each person will take an asset of approximately equal value. However, if one asset is taxed on distribution and the other is not, they should keep this in mind when assessing the value. Another consideration is the liquidity of an asset. A home that a person cannot sell quickly may be less valuable than a savings account.