Generally speaking, a divorce will have a profound impact on your finances both now and in the future. As Louisiana is a community property state, you could lose roughly half of your net worth in a final settlement. Furthermore, you might also be responsible for paying a joint debt that you didn’t know about or play a role in accruing.
Tips for paying off joint debts when a marriage ends
It might be in your best interest to make sure that joint credit card balances are paid off before the marriage is officially over. Doing so allows you to close an account before your spouse can accrue any more debt that you might be liable for. If you and your spouse have outstanding mortgage or auto loan balances, it may be possible to sell the collateral and split any equity that had accrued in those assets.
How to minimize a tax bill after a divorce is finalized
When dividing a 401(k) or other qualified retirement plan, it is important to obtain a qualified domestic relations order prior to doing so. This will tell the plan administrator and the IRS that a withdrawal is pursuant to a divorce. As long as the money is transferred directly into a new retirement account, there is no need to pay income taxes or an early withdrawal penalty.
If you profit from the sale of a home, car or stock portfolio, you will likely need to pay capital gains taxes. It is important to note that the first $250,000 in profit from the sale of a residential property is generally exempt from capital gains tax. This figure increases to $500,000 if the home is sold while you are still married to your spouse.
A family law attorney may be able to help you obtain a favorable settlement in a divorce case. For instance, it may be possible to avoid paying a joint debt in exchange for waiving your right to a portion of a bank account or other joint asset.