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Financial Pitfalls for Divorcing Couples in New Jersey

NJ.com has been receiving lots of questions about the changes to alimony in New Jersey coming in 2019, which we first wrote about last month as part of an ongoing series on divorce and financial literacy.

MoneyBeginning in January, spousal support payments will not be tax deductible for the payer and tax-free for the recipient. Put another way, $100,000 in spousal support payments between a couple in the IRS’s 25 percent tax bracket will be worth about $125,000 to the recipient and will cost the payer a like amount. Previously, a paying spouse could deduct payments, while a receiving a spouse was obligated to pay taxes on the income (thus a net of about $75,000 each).

As you can see, changes to that simple, long-standing tax rule can quickly result in a 50 percent benefit swing. And that is just one financial issue that should be addressed when planning divorce.

Monmouth County Divorce Help

The truth of the matter is that divorce can be among life’s biggest destroyers of wealth. But it doesn’t have to be that way. Consulting an experienced divorce lawyer in Monmouth County can help you avoid some of the worst financial pitfalls of divorce. Yes, legal help can be costly, but New Jersey family law firms are well aware of the challenges and will typically work with you on cost-effective strategies. Trying to navigate divorce alone can be far costlier, as our tax example on alimony illustrates.

Among the most common and costliest issues of divorce are:

Spousal Support: Alimony is based on 14 statutory factors outlined in N.J.S.A. 2A:34-23(b). Factors include need and ability to pay, as well as the duration of the marriage and health of the parties. Alimony payments may be temporary, open durational, rehabilitative or pendente lite (short-term while a divorce is being finalized).

However, the devil is always in the details.

Under New Jersey Court Rule 5:5-2, once a divorce claim has been filed a party must, within 35 days, file a Case Information Statement (CIS). This is a critical document that provides the court with each party's income, expenses, assets, and liabilities. Your divorce lawyer must understand all of the ways in which separating spouses attempt to minimize income and assets and should request and thoroughly review all supporting documentation.

Imputation of income is another factor that can significantly impact your case. Most often used when one spouse has chosen to take on childcare and household responsibilities, it means assigning an income to a spouse based on that person's potential to earn income. Failure of your divorce lawyer in this area can result in a spouse being forced to return to the job market after a long absence with unrealistic income expectations.

And, in all likelihood, you will be re-entering the workforce. Changes to New Jersey law in 2014 have largely abolished permanent alimony, although for marriages exceeding 20 years, the duration of alimony payments can extend indefinitely, subject to modification.

Child Support: Books have been written on the issues involving child custody and child support. However, parents still too often fail to take into account expenses beyond court-ordered support payments, including educational and medical expenses. For the most part, these are not theoretical expenses. They will occur, and failure to fulfill your obligations could carry the same legal weight as failure to make child-support payments.

Equitable Division of Property: New Jersey is an equitable division state. Equitable means fair, it does not necessarily mean equal. A marital home, retirement accounts, inheritance, stock options, valuable insurance policies, and a wealth of other issues (not the least of which is taxes) will ultimately factor into determining your share.

Taxes: Speaking of taxes, throughout the course of your divorce, there will be Uncle Sam, with his hand out, like a third party to the marriage. As our alimony example illustrates, taxes can have an enormous impact on the true value of your divorce settlement. In addition to alimony, selling real estate or tapping retirement accounts can result in a tax bill ranging from 15-50 percent.

Liabilities: Failure to remove yourself from joint household, mortgage, bank or credit card accounts, can result in significant future financial liability. Your bank does not care what your divorce agreement says. If your name remains on a debt obligation, you will be held legally responsible by the lender.

Too often, splitting couples try to go it alone because they fear hiring a lawyer will be too costly, or will interject unnecessary drama into a split. We have often found the opposite to be true. Trust us when we tell you every divorce lawyer in America has seen their fill of drama and nasty divorces. It’s our job to take emotion out of the equation as we help our clients avoid making the type of costly mistakes that will negatively impact their new life.

Call Rozin|Golinder Law, LLC today for a free and confidential consultation so you can determine what the best course of action is for your case.

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