Postponing A Divorce Until the New Year Has Advantages
When a couple decides to divorce, the spouses typically want to resolve the matter as quickly and painlessly as possible. However, there may be financial advantages to staying married through the end of the calendar year. Two important considerations – tax liability and insurance coverage – should help guide your decision-making.
Avoiding Higher Tax Liability
Tax liability is a major factor when negotiating a divorce settlement. Couples filing tax returns are generally better off using the Married Filing Jointly status, which only applies when the couple remains married on December 31 of that tax year. Filing individually may result in greater tax obligations.
If one spouse is the primary wage earner, the differential between filing jointly or individually may be significant enough to put off filing the couple’s divorce settlement agreement with the court. The terms of the divorce can be settled in advance and finalized later, assuming the couple can come to an amicable settlement.
Maintaining Health Insurance Coverage
Health insurance coverage is another important consideration for a divorcing couple. If one is currently covered under his or her spouse’s health insurance plan, he or she will no longer be eligible to be covered under the spouse’s plan upon the finalization of their divorce case. However, he or she is still required under the Affordable Care Act to have coverage for every month of the year and for dependents claimed on the tax return. Individuals may enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period if previous 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 such, 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.
Other Key Considerations
Other factors to take into consideration include timing of possible financial windfalls like work bonuses. If one spouse anticipates the other spouse will be receiving a bonus later in the year, it may be worthwhile holding off on filing the divorce until the bonus is received. On the other hand, the spouse expecting to receive the bonus may wish to file and finalize the divorce quickly to ensure he or she will not have to split the bonus with the other spouse.
Use a Trusted Advisor
If an individual seeking a divorce uses 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, your attorney can help find other financial professionals, including financial advisors, to evaluate the options.
It’s important to address these issues early with your lawyer and your financial advisors because timing can play an important part in divorce proceedings. Delays may result in increased tax obligations, penalties and interest when tax time comes around. Similarly, it is important for parties to have continuation of health insurance coverage to avoid expensive medical payments or eligibility requirements. Contact BCNTR Law today.