With so many lavish celebrity weddings in the news recently, incurable romantics very often forget (and who would blame them?) that roughly five out of every 10 marriages end in divorce. That's a 50/50 chance of getting it right—good enough odds if you're a betting person. But if a client is not the gambling type, then he or she needs a financial advisor well versed in the division of marital assets, its tax implications and state laws. Such an advisor can help one side of a divorcing couple make the best of a tough and life-changing situation.
The following case is a fictional one that mirrors numerous challenges in divorce as assets are identified as separate or marital, divided and tax consequences are determined. Let's say the client resides in a community property state such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin. In these states assets identified as marital are divided in a 50/50 rule of property division, a rule about which the law is very specific. The other states not mentioned operate under an "equitable division" rule in which assets are split according to what the divorce court or mediator deems fair and equitable.
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