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Property division should best be kept an unemotional process

Most California residents find it extremely difficult to avoid making emotional decisions during a divorce. However, considering the fact that one’s financial future depends on decisions made during property division negotiations may underscore the importance of unemotional decisions. Unwise decisions made during this process may result in costly mistakes that can start an individual’s new life on a negative footing.

Each spouse needs to evaluate every single asset and consider the implications of keeping it or liquidating it. Simply splitting the assets 50/50 may seem to be the easy way out, but could have detrimental consequences. For instance, if a couple decides that the wife should keep the home which has a value of $500,000, and the husband should keep a 401(k) that is worth $500,000, it may seem as equal division. However, the husband would be liable for more than $166,000 in taxes while there will be a gain exclusion on the wife’s house.

It is not uncommon for a wife to make an emotional decision to keep the family home, especially if she is going to retain primary custody of any children. However, she may not consider the fact that maintenance of the property, along with obtaining a new mortgage in her name, could lead to financial ruin. A mortgage application on a single income may be declined, and she may not be able to keep the home. Couples may benefit from trading assets to create a fair outcome as asset transfer between spouses remains nontaxable. In contrast, liquidating assets is taxable, and it may be wise to only resort to liquidation as a last resort.

Divorcing couples in California who find the property division process overwhelming may want to obtain the services of financial advisors to guide them through all the potential pitfalls of property appraisals, capital gains and exclusions. With proper guidance, couples may be able to navigate through property division. It may allow them to come to mutual agreements prior to going to court, thereby possibly avoiding future litigation related to unfair property division.

Source: CNBC, "Not always a rose: Avoiding thorny asset-liquidation issues in divorce", Deborah Nason, June 14, 2014

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Victoria S. Linder Law Office
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Phone: 916-905-4805
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