The High Cost of a DIY Divorce
You have installed tile in your kitchen and refinished furniture, painted the children’s bedrooms and even built your deck. You are a resourceful, intelligent and thrifty person. Why not do your own divorce? All it should take is a little research on the Internet, maybe a trip to a law library, and you have saved thousands. Right? Divorce as a do it yourself project may seem like a money saving proposition, but more likely than not it will cost you much more in the end–and you may never know what you have lost.
There are many traps for the unwary in the process of getting a divorce. This article will explore only a few of the more expensive mistakes a layperson might make in a “do-it-yourself” divorce.
- Military Retirement Benefits: One of the features of military retirement is the survivor benefit plan (SBP). This allows a former spouse of a military member to continue to receive retirement payments monthly even after the military member’s death. But you must request this benefit in your divorce proceeding and you must know how to secure that benefit even if your spouse agrees you should receive it or it is awarded by the court. The military must be informed within a certain time frame that you are to receive the SBP. If that is not done correctly it will likely be lost forever.
- Calculating Support: Determining a spouse’s income is important to the calculation of both child and spousal support. One of the questions that may be overlooked in a DIY divorce is should income be imputed to a spouse. Imputation of income can be appropriate when a spouse is voluntarily un- or under-employed. If your situation is one where imputation should occur, overlooking this could have a profound impact on the support you and your children receive.
- Dividing the Equity in a 401(k): When considering how to correctly and fairly divide a 401(k) it is important to first analyze whether that account contains any separate property. Did the owner make contributions to the account before the marriage or after the date of separation? Those contributions and the growth on those dollars should not be divided. An attorney is able to obtain the documentation and has the software needed to calculate the separate share and to determine what constitutes the marital share.
- Netting the Value of Assets Against One Another: A common mistake in dividing assets is to net the value of an asset containing pre-tax dollars against an asset that will not be taxed. For example, most Thrift Savings Plans or 401(k) accounts contain contributions of pre-tax dollars. Upon withdrawal of the funds, the owner will have to pay taxes on those funds. In contrast, when a spouse buys out the other spouse’s interest in the marital home, pursuant to a divorce, this income to the spouse receiving payment would not be taxable. Therefore, if, in order to equalize assets, a husband needed to pay $100,000 from his $200,000 TSP to the wife and the wife needed to pay the husband half the $200,000 equity in the house, it would not be fair simply call it a wash. The $100,000 which the husband would retain in his account is not actually $100,000. Rather it is $100,000 less taxes.
An attorney who regularly practices divorce law will know about these and many other traps for the unwary and should be able to save you more than he or she will cost in obtaining a divorce. Contact Compton & Duling, L.C. at (703) 583-6060.
Disclaimers: This article is limited in scope and depth. We recommend retaining an attorney licensed in your jurisdiction because each particular family situation is unique. This article is not intended to create an attorney-client relationship with the reader. Further, this article is not intended to provide tax or financial planning advice.