Financial Planning & Property Division Flashcards

In equitable distribution states, which factor is typically NOT a consideration when courts divide marital property?

Answer: Fault or marital misconduct in most states

Most equitable distribution states are 'no-fault' and do not consider marital misconduct when dividing property, though a few states still allow it as a factor.

A spouse who cashed out a retirement account during the marriage and spent the proceeds is said to have committed what financial act requiring potential offset in divorce?

Answer: Dissipation of marital assets

Dissipation occurs when a spouse wastes or depletes marital assets during the breakdown of the marriage, often resulting in a credit to the other spouse in settlement.

What is the key difference between 'date of separation' and 'date of divorce' for property valuation purposes?

Answer: Some states value assets at separation while others use the divorce date, affecting which assets are marital

Different states use different cutoff dates — separation or divorce — to determine the end of the marital estate, which can significantly change which assets are subject to division.

Which insurance product can be used to secure ongoing alimony or child support obligations in the event the paying spouse dies prematurely?

Answer: Term life insurance with the recipient as beneficiary

A term life insurance policy on the paying spouse, with the support recipient named as beneficiary, ensures support obligations are funded if the payer dies during the support period.

When a spouse receives a property settlement payment (not alimony) in a divorce, how is it generally treated for federal income tax purposes?

Answer: Not taxable — property transfers in divorce are generally tax-free

Under IRC Section 1041, transfers of property between spouses incident to divorce are generally non-taxable events; the recipient takes the transferor's basis.

In divorce financial planning, what does the term 'opportunity cost' refer to when evaluating a settlement offer?

Answer: The potential return forgone by accepting one asset over an alternative

Opportunity cost represents what a spouse gives up by choosing one asset (e.g., the house) over another (e.g., an investment portfolio) with potentially higher long-term value.

Which debt is typically NOT dischargeable in bankruptcy and must be accounted for in a divorce financial plan even after bankruptcy filing?

Answer: Domestic support obligations such as alimony and child support

Domestic support obligations — alimony and child support — are non-dischargeable in bankruptcy under 11 U.S.C. § 523(a)(5), meaning they survive a bankruptcy filing.