Should You Postpone Your Divorce Until After the New Year?
When a couple ultimately decides on divorce, the spouses typically want to get the matter resolved as quickly and painlessly as possible. However, there may be a financial advantage to staying married through the end of the calendar year.
Tax liability is a major factor that should be considered when negotiating a divorce settlement. Couples filing tax returns are typically better off using the Married Filing Jointly status, which only applies when the couple remains married on Dec. 31 of that tax year. Otherwise, the parties would need to file individually, which may result in bigger tax obligations.
If one spouse is the primary wage earner, the differential between filing jointly or individually may be significant enough to put off entering the divorce agreement until after the new year. Terms of the divorce can be settled in advance and finalized later, if the couple can come to an amicable agreement.
Keeping your coverage
Health insurance coverage is another important consideration for a divorcing couple. If a spouse loses health insurance coverage due to divorce, he or she is still required under the Affordable Care Act to have coverage for every month of the year and as well as for dependents claimed on the tax return. Individuals may enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period, if coverage ends due to a divorce.
Although divorce is becoming less common for younger adults, so-called “gray divorce” is on the rise: Among U.S. adults ages 50 and older, the divorce rate has roughly doubled since the 1990s. As a result, Medicare benefits may become a consideration in divorce negotiations. If one spouse has Medicare benefits while the other spouse does not, the couple may agree to wait to file the divorce papers later in the year when that spouse becomes eligible.
Clients need to think strategically about financial issues. It’s common in divorce proceedings for one spouse to offer an incentive to the other in negotiations to make the divorce settlement worth the wait for both parties.
Use a trusted adviser
If an individual seeking a divorce has an accountant that he or she trusts, we recommend consulting with the accountant early in the process. If there are concerns that the accountant and the other spouse have a close relationship, we can help find other financial professionals, including financial advisers, to evaluate the options.
It’s important to address these issues early with your lawyer and your financial advisers because timing can play an important part in divorce proceedings. Delays may result in larger tax obligations, penalties and interest when tax time comes around.