Q&A: Divorce Financial Planning
In a divorce, what will I be responsible for when it comes to selling our home?
In a divorce, you will be responsible for the taxes applied to the appreciation of the home above its adjusted cost basis. The adjusted cost basis is normally the original purchase price plus the cost of any capital improvements that were made. Another important factor in determining the home’s future tax liability is the available capital gain exemption of up to $250,000 per individual that each qualifying homeowner receives. This could significantly impact the potential taxable gain if it is later sold by one person rather than two people.
When should I involve a wealth manager during a divorce process?
You may be asking when it’s time to involve a financial advisor during a divorce process. It is ideal to work with an experienced Wealth Manager early in the divorce process to think through all related financial considerations, especially for keeping the family home. Thorough cash flow planning should also be done that incorporates these issues of illiquidity and non-income producing status, ongoing carrying costs, deferred maintenance, and potential tax liability if gain is realized. Your Wealth Manager should be able to help you better assess things by illustrating different cash flow scenarios plus expected capital market returns as well as inflation assumptions. Understanding the financial impact of keeping the family home will help you better negotiate your settlement agreement and plan for the future.
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