Articles & Tips

Divorce and Your Estate Plan

Protect Your Financial Future

Maintaining your financial security, and that of any dependent children, is one of the toughest challenges you are likely to encounter when facing a separation or divorce. But once you have decided to divorce, there are a number of estate and gift tax opportunities and pit falls that may arise as a result of your new status as an unmarried individual.

As you go through the process, consider the following:

  • Your children’s anticipated inheritance from you and your former spouse can be protected in the event that either of you subsequently remarries. Such protection can be achieved by using certain trusts.
  • If you have done any irrevocable charitable planning, you may be able to divide your charitable trust or family foundation between you and your former spouse. Not only could this step provide you with the closure you desire, but also the opportunity to make future independent charitable choices without the need to consult your former spouse.
  • Remember to coordinate the change of all beneficiary designations pending a divorce.
  • If children are named as life insurance beneficiaries, and one parent dies, the other parent usually gains custody of the children. If so, the surviving parent (e.g., the ex-spouse) could control any money left to the children from life insurance. One strategy for dealing with this problem is to have the insurance policy payable to a trust for the children, or to a separate living trust that you control.

As with any estate planning issue, it is imperative to get the help of legal and tax professionals who are familiar with dealing with the unique circumstances that can arise from the division of marital assets.

Is Your Home Keeping You Together?

By Candace Bahr, CEA, CDFA and Ginita Wall, CPA, CFP®, CDFA

Is Your House in Limbo?

Home sale prices have dropped, and in many communities the market is moving at a snail’s pace, with sellers outnumbering buyers. That’s not a problem if you aren’t planning to sell your home. But if you are divorcing, sluggish home sales can be a huge obstacle in dividing up your assets.

Your home likely is the largest asset that you and your spouse own, and it is also the most difficult to divide. You have three choices in divorce: keep the house, sell it, or continue joint ownership. If you decide to keep it, make sure you can afford the costs associated with your house, including maintenance, repairs, home ownership association fees, gardeners and other household expenses. You may be able to afford the mortgage, but the other expenses could break your budget.

If you and your co-owning spouse decide to sell, you will share the costs of sale and you can exclude up to $500,000 of capital gains. If on the other hand you become the sole owner of the house in the divorce settlement, when you eventually sell it you’ll have to pay the entire cost of sale and capital gains liability, and you’ll only be able to exclude $250,000 of gain. Anything you pay to your ex for his interest in the home won’t reduce the gain when you sell the home down the line.

Since owning a home can be an expensive proposition for a newly single individual, many divorcing couples decide to sell. But if today’s sluggish market precludes a speedy sale, you may decide to own the home jointly for a few years after the divorce. Specify in your agreement when the home will be sold, for example, when the children are grown, and split the proceeds when that time comes.

If you decide to own the home jointly for a few years, you must get a written agreement or court order granting you exclusive use of the residence and keep your ex’s name on the deed. The house will then be considered your ex’s primary residence as well, and he will preserve his ability to exclude $250,000 of gain when the house is sold.

In divorce you’ll end up with far less than you had before, so decide what is most important to your future. If you give up retirement assets to keep the home, develop a plan to build a nest egg for later in life. A bit of advance planning goes a long way.

Written by

  • Ginita Wall and Candace Bahr
    co-authors of the book: “It’s More Than Money–It’s Your Life! The New Money Club for Women”

Reprinted with permission of the

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