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| Divorce |  Nowadays there are lots of hedge funds, stock-option grants and other investments that can be tricky to value. They give belligerent spouses something new to fight over. At one time, the IRS has an eye on cases where two separate taxpayers claim the children as dependents, a big no-no.
The main mistake of splitting spouses is head-spinning: Dividing a stock portfolio the wrong way can result in vastly unequal capital-gains-tax hits. Overlooking the mysterious QDRO form (pronounced "KWA-dro") can lead to a mess of dividing a 401(k).
All of this gave birth to the nascent industry of “certified divorce financial analysts.” For payments of $150 to $250 or so an hour, these advisers help to handle the economic aspects of divorce, as opposed to the legal issues like custody that are the domain of divorce lawyers.
In last years, nearly 2,500 of these divorce specialists have been trained, according to the Institute for Divorce Financial Analysts, with new registrants increasing about 25 percent a year.
They watch out for tax snafus, help clients obtain health insurance after divorce, and clear up tough-to-value private-equity or hedge-fund investments. They also advise clients on which assets to fight for, and which to skip.
Some common errors: Dividing a stock portfolio down the middle without checking for losses or gains - which can lead to a tax break or a big capital-gains tax hit.
There are some measures you can take to prevent house-related tax hits. If you keep the house and retitle it in your name, but end up selling it after divorce, you may be able to cover only as much as $250,000 of the gains from capital-gains taxes. Think over selling the house while you are still married, or include specific provisions for the sale of the house in the divorce decree, to cover as much as $500,000 from capital-gains taxes.
The QDRO - short for Qualified Domestic Relations Order - is a court order that spells out who gets what in an employer-sponsored retirement plan such as a pension or a 401(k). QDROs must be approved by both the employer's retirement-plan administrator and the divorce-court judge.
The document allows you make transfers to an Individual Retirement Account, or perform early fund withdrawals from the plan without paying the usual 10 percent IRS penalty if you are under age 59 1/2.
Try to complete the QDRO before the divorce is ended. Otherwise, in case of the death of your ex, remarry or leave the company, it may be tough to receive any retirement money.
If you are paying alimony, you can demand the payments as a deduction. But if you get alimony payments, they count as taxable income. Child-support payments are neither deductible nor taxable.
One more tip: Take out a term life-insurance policy on the alimony-paying spouse. And update wills, trusts and beneficiary designations on retirement plans and insurance policies, so that your ex doesn't end up inheriting an unintended windfall.
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