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Financial Infidelity Can Destroy Trust in MarriagePeople usually associate infidelity in a marriage with having a romantic affair. There are other ways that spouses can lie to or hide things from each other that are just as hurtful. One way that is receiving increased attention is financial infidelity, which is when a spouse has secret financial accounts or debts. Financial infidelity is not only a betrayal of trust, but it also puts the unaware spouse at financial risk. In some cases, the betrayal may be serious enough that the spouses choose to divorce.

Understanding Financial Infidelity

Digital technology makes it easy for someone to create secret accounts or conduct financial activities without their spouse knowing. The person can control everything remotely and hide records. As with most lies, the truth comes to light usually when the lying spouse feels compelled to confess or the unaware spouse discovers evidence of the secret finances. There are several reasons why a spouse may have secret assets or debts:

  • The assets could be paying for a romantic affair;
  • The spouse may have an addiction, such as gambling, shopping, or substance abuse;
  • The spouse may have obtained the money illegally; or
  • The spouse may be siphoning away money because they are preparing to leave the marriage.

Regardless of the reason, financial infidelity affects both spouses because they are both liable for debts accumulated. Even if there are no debts, the money diverted to the secret account could have been used to pay for marital expenses, child expenses, or retirement savings.

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Limited Tax Deductions May Make Keeping Home CostlierThe elimination of the alimony tax deduction has rightfully received the most attention amongst the recent changes to the federal tax laws. Not being able to deduct your spousal maintenance payments from your federal taxes is changing how divorcees negotiate their maintenance. However, changes to tax deductions related to real estate could affect whether you want to keep a home or other real property after a divorce. People in high-asset divorces may have fewer tax deductions available to them.

Tax Deductions

One of the goals of the federal tax reform law passed in 2017 was to simplify the tax code. The standard deduction for a single filer increased from $6,000 to $12,000, but many other deductions were reduced or eliminated, including:

  • Capping deductions for state and local income and property taxes at $10,000 when filing as a single person or a married couple filing jointly, or at $5,000 for a married person filing separately;
  • Eliminating deductions for home equity loan interest unless the loan was used to pay for improvements towards a primary or secondary home;
  • Reducing the mortgage interest tax deduction from $1 million to $750,000 if the mortgage was obtained after Dec. 15, 2017; and
  • Eliminating deductions for foreign real estate taxes.

Some of the people who stand to lose the most from the tax deduction changes are those who own multiple real properties and those who live in areas with high local income and property taxes. Even though the standard deduction has doubled, people in a high-asset divorce may have been able to save more money on taxes with the previous deductions intact.

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How to Tell If You Are in a High Asset DivorceA high asset divorce means high stakes for both sides during the division of property. The properties in a high asset divorce are both valuable and numerous, making the property assessment process more difficult. How do you identify whether you will be going through a high asset divorce? Besides the incomes of yourself and your spouse, there are several types of properties that are typical in a high asset divorce:

  1. Multiple Real Estate Properties: Your home is often the most valuable property in your marriage. In a high asset divorce, you may own several real estate properties, such as a seasonal home, undeveloped land, or a building which you allow other people to rent.
  2. Multiple Vehicles: Each spouse has his or her own vehicle in a typical divorce. In a high asset divorce, you may have additional vehicles that you use for recreational purposes or keep as collector’s items. Common examples include vintage cars, motorcycles, and boats.
  3. Business Ownership: Owning a business can be more lucrative than being an employee. If your spouse is a business owner, he or she has likely invested substantial money into it and has many valuable assets tied to it. A business valuation can determine the current and potential value of the business, which may be a marital property.
  4. Investments: Money in the stock market or business interests may be paying dividends now or promising payouts in the future. You need to carefully evaluate these assets during your divorce. Some investments have a low current value but have the potential to increase in value. However, it is risky to overvalue the potential of investments in case they do not increase in value as expected.
  5. Benefits and Insurance: People in high asset divorces have often been saving towards their retirement for years. You are entitled to a fair share of the retirement benefits that your spouse has accumulated during your marriage. Your spouse may also have a life insurance policy with cash value that you can divide.
  6. Collectibles and Luxury Items: People use their disposable income to purchase items that interest them. In a high asset divorce, those items may be valuable, such as art, jewelry, and memorabilia. The value of these items is part of the division of property because marital income was used to buy them.

Property in a High Asset Divorce

You should not assume that you know the actual value of your marital assets during your divorce. You need a professional assessor to identify valuable properties from your marriage and determine their worth. A DuPage County divorce attorney at Calabrese Associates, P.C., has experience working with clients in high asset divorces. Schedule a consultation by calling 630-393-3111.

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Five Mistakes to Avoid in High Asset DivorceDivorcees with high-value assets follow the same laws as everyone else getting a divorce. The difference is that wealthy individuals have more at stake in terms of finances. The process of dividing up their assets is often more complicated because the assets are numerous and diverse. Whether because of miscalculation or emotion, making a mistake can cost thousands or millions of dollars. Individuals in a high asset divorce must take care to avoid these mistakes when dividing up their marital properties:

  1. Hiding Assets: With the prospect of losing several valuable marital properties, a divorcee may try to protect them by purposely hiding them or failing to disclose them. Common tactics include creating hidden accounts or temporarily transferring properties to a friend. A divorce court may penalize a party who has been caught trying to deceive a spouse. The guilty party may be forced to compensate the other spouse by giving up marital assets or money.
  2. Incomplete Investigation: A spouse can be held accountable for hiding assets only if the other spouse catches him or her. Failing to thoroughly search for marital assets puts a spouse at a disadvantage. The identified properties may be divided equitably, but having hidden properties means one spouse is receiving an inequitable share. If a spouse learns about the hidden assets after the divorce is completed, he or she is responsible for providing evidence of the deception.
  3. Undervaluing Assets: Once spouses identify all of their marital assets, they must put an accurate value to each asset. Complex properties, such as businesses or investments, are common in high asset divorces and difficult to assess. One spouse will likely maintain complete control of the business, while the other receives equitable compensation. When assessing a business, assessors must determine both its current and future value.
  4. Forgetting Tax Obligations: Not all marital properties are treated equally in terms of taxes. Some properties, such as real estate, are subject to additional taxes. After taxes are taken out, a once-equitable division of property may seem more uneven.
  5. Giving in to Emotions: Rich or poor, couples are likely to feel some bitterness towards each other during a divorce. This may cause parties to make decisions based on spite, rather than what will benefit themselves. With high asset divorces, there are more opportunities to try to punish a spouse by obstructing his or her efforts to receive an equitable share of properties. Vindictive actions do not help negotiations and needlessly prolong the process.

Settling a High Asset Divorce

A divorce that includes several valuable assets requires an experienced and knowledgeable divorce attorney. A DuPage County divorce attorney at Calabrese Associates, PC, can properly identify and assess your marital properties. Schedule a consultation by calling 630-393-3111.

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Reducing Capital Gains Tax When Selling Marital HomeThe marital home – or more specifically, the value of the marital home – can be a hotly debated subject when dividing properties in a divorce. Only one spouse can keep the home, and the other spouse will need fair compensation in money or assets. Some spouses instead choose to sell their marital home and split the revenue from the sale. Each spouse can receive a substantial payout from the sale to go towards his or her post-divorce life. However, lucrative sales will incur the capital gains tax. The timing in which divorcing spouses sell their marital home can reduce their tax obligation.

Reasons to Sell

A home is often the most valuable property in a marriage, in both monetary and personal terms. Spouses may have an emotional attachment to the home, especially if they have children. However, selling the home is the most practical option in some divorces:

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