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Monday, November 7, 2011

Problems Women in Traditional Marriages May Face in Divorce

 |Guest Post by Dick Critchlow|

While the traditional marriage is not as common as it once was, there are still some women quite content in these traditional marriages. For the record let us define a traditional marriage as one in which one of the partners (usually the wife) either assumes the sole responsibility of caring for the home and family or only works part-time or for minimum wage. Your divorce lawyer can help you to determine if this is the case. While the role of the traditional marriage is an important one, it can be disastrous if the marriage ends because one of the parties has depended upon the income of the spouse and suddenly finds that income is no longer available.

The spouse in these traditional marriages can be faced with some tax burdens on which he or she didn't plan. For instance, the wife who is awarded 50% of her husband's pension for collection at a later date may find though it is only worth $600 monthly today, it will be worth much more when he actually retires. This could lead to several problems at that time:

  • Reduction of government benefits that are based on income
  • A tax burden on which she didn't count and uncertainty how she is going to pay it
  • Reduction in social security benefits because of the increase in income if it exceeds her allowable amount
The wife who is awarded the house in the divorce can also face some problems. Currently the government allows an exclusion of $250,000 in capital gains taxes as long as the homeowner has lived in the home at least two out of the previous five years. Sometimes the wife is awarded the house and discovers she is unable to afford the upkeep and sells it less than four years after the divorce settlement thus losing the $250,000 exclusion. A more equitable solution would be for the couple to retain ownership of the property for the four years and then sell the house. At that time they will be entitled to a $250,000 exclusion each or a total of $500,000. The only taxes they will have to pay at that time involves profits in excess of the exclusion.

If the settlement is done correctly alimony can be advantageous for both parties. For instance, if the payments for alimony are included as part of the marital property division without indicating that the payments are for alimony, they will be considered part of the divorce settlement and will not be taxable. On the other hand if the divorce documents indicate the payments are for alimony or maintenance, the payments are tax deductible for the payer but taxable for the recipient.

When women in traditional marriages find they are facing divorce, it is a good idea to consider the above points before making a final decision on a settlement. Talk to your divorce lawyer or a financial advisor about the best way for you to structure your divorce settlement in order to achieve the best tax advantages. Do not be so quick to demand single ownership of the marital home because it may not be in your best interest. Taking the time to review all the divorce steps and following up with your lawyer will help you make the decision that is right for you.

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