Avoiding Divorce Mistakes: Beware of Illiquid Assets

 Posted on May 12, 2014 in DIvision of Property

Hiring an attorney to help you understand a truly fair division of assets in divorce is definitely in your best interest. One of the most common scenarios for a divorcing couple is that one spouse gets the house and the other receives the assets in savings, retirement accounts, and brokerage accounts.

Financial advisor Ted Jenkin notes that while on paper this may seem fair, it can actually leave one spouse in a sticky situation. And when looking at math alone, this split may very well appear fair. If cash flow is a problem, however, the spouse with the paper assets in the house may have trouble unloading that asset and getting access to the funds quickly.

The same is true when one spouse owns a business. The spouse that gets the business asset has very little liquidity in that, while the other person can get access to funds more quickly.

A great example is a spouse that is counting on alimony and child support to help pay the mortgage in the house he or she received in the divorce. If those monies run out, the spouse with the house may have trouble selling the house quickly. He or she may also get stuck selling the house for less than it is worth because money is tight.

In a divorce, it is important to avoid being a spouse with illiquid assets. What seems "fair" at the division of property could end up hurting you down the road. Of course, there are tax consequences to selling the primary residence and splitting the sale. But this it something you should consider as part of your overall strategy for becoming financially solvent on your own, post-divorce.

Make a list of all your assets and debts before meeting with your attorney for the first time. Your attorney can provide valuable guidance about what works best for you, and also explain the difference between liquid and illiquid assets. Contact an Illinois divorce attorney today to get started.