When It Happens Matters: Timing the Financial Steps of Divorce

Most people ask what they will get in a divorce; fewer ask when, and that second question can quietly change the answer.

Most people are just trying to get to the end

A client told me a few weeks into the process, “I just want this done. I don’t care how. I just want a date.” I understood completely. When your life is on hold, the finish line can feel like the only thing that matters.

So people treat the divorce like a line at the DMV. You get through it, sign the paperwork and move on. The conversations center on what gets divided and how much each person receives. Those are the right questions, but they are not the only ones.

A third question rarely comes up until it is too late to ask: when. Several ordinary decisions come out differently depending on whether they happen before the divorce is final or after, and on which side of December 31 they land.

Why the calendar has a say

None of this is exotic. These are routine steps that most people schedule for convenience, around when the movers are free, when the buyer wants to close, or when the lawyers can get the paperwork filed. What the timing does to the result usually doesn’t come into it.

The problem is that once a date is set, the choice that came with it is usually gone. You cannot reopen a closed sale or move a finalization date back into last year. The time to think about order is while the dates can still move.

Common decisions where timing can matter

These are the places where I most often see timing come into play. The details depend on your state, your situation and current tax law, so treat them as questions to raise, not answers.

• Selling or transferring the house. A sale while you are still married can be treated differently from a sale afterward, or from one spouse transferring the house to the other as part of the settlement. Who owns it on the closing date, and under what agreement, can affect how any gain is handled.
• Your filing status for the year. Which side of December 31 the divorce is final on can affect how you file for that year. Ask a tax advisor before a finalization date is set.
• Dividing retirement accounts. How and when an account is divided, and the paperwork used to do it, can change the result. Ask before any money moves.
• When support begins. The start date for support, and whether payments begin before or after the agreement is final, can affect how the payments are treated and your cash flow in the months that follow.
• Benefits tied to the length of the marriage. Some benefits depend on how long you were married. If that could apply to you, ask your attorney how the finalization date fits in.

What to do with this

You don’t need to become an expert in tax rules. You just need to add one question to your list: does it matter when this happens?

Before you agree to a closing date, a finalization date or the start of a payment, ask your attorney and a tax advisor whether moving it would change the outcome. Sometimes the answer is no, and you can go ahead with peace of mind. Sometimes it is yes, and it is far better to know that before the date is set.

It also helps to lay out the steps in order before anything is scheduled. What needs to happen first, and what should wait? Seeing the whole sequence on one page often shows that a decision you thought was minor isn’t.

Wanting it over is human. Just make sure that going fast is a choice you made on purpose, not one the calendar made for you.

If you are in the middle of this and want a second set of eyes on the order of things before the dates are locked in, I am glad to talk it through. A calm conversation now can prevent a hard surprise later.

This article is for education only and is not legal or tax advice. It is meant to work alongside your attorney and tax advisor, who can speak to your specific situation.