Divorce Isn’t Easy, Make Sure You Consider These Important Financial Issues

By Susan


Last Updated: August 24, 2021



Oftentimes, people put themselves under unnecessary stress while contemplating divorce by worrying about their financial situation. Fear of the unknown causes a lot of stress before, during, and after divorce. Focusing seriously on your financial position is crucial because it gives you a sense of control over your life, which may alleviate stress. Assets, obligations, income, and expenses are the four areas in which your financial status may be assessed.


  • Financial Assets Assessment In Divorce

Savings accounts, cash, certificates of deposit, checking accounts, bonds, money-market accounts, REITs, savings bonds, stocks, and mutual funds are all examples of financial assets. When it comes to divorce, most of these assets may be more valuable to the low-earning spouse, who may need to utilize them to pay for some of his or her daily costs. The tax effects of all assets are not the same! Retirement assets are typically pre-tax assets, which means you must pay income tax on every distribution you get in order to access the funds. In rare circumstances, in addition to the income tax, you may be required to pay a fine on the distribution.

For instance, Sarah recommended that Joe maintain his $50,000 in retirement funds while she took the money-market account (also $50,000). Joe agreed because the assets appear to be divided equally. Joe, on the other hand, will have to pay taxes on the dividends when he retires in a few years. So, if Joe pays a 25percent tax rate, he will only earn $37,500 instead of the $50,000 that Sarah received.

It's necessary that you and your spouse figure out how defined-benefit schemes, like pensions, will be split. In most cases, this is expressed as a fraction of the retirement pension at the time of the divorce. If the employee dies, the agreement must also indicate whether the employee's divorced spouse is entitled to survivor's compensation. If otherwise, and the now-ex-spouse dies, you, the remaining spouse, will be left without the money you were counting on.

This article is put together just to enlighten you on the subject matter, but that doesn't necessarily mean that it contains all information you need to know. So, there is a need to seek expert assistance.


  • After a divorce, how do you divide your real estate?

Your marital home (residential properties), timeshares, vacation properties, commercial properties, and any company property are all examples of real estate. If you're like most people, you consider your house to be your home. Because of these sentiments, the term "home" is often associated with feelings or dear memories and can be a tough asset to negotiate. Consider who will pay the expenditures till the asset is purchased if the asset is going to be sold. What will happen to the proceeds (or obligations, if the house sells cheaper than the amount owed on the mortgage)?


  • Taxes

In the division of family work, it is common for one spouse to delegate the task of completing tax returns to the other. Copies of combined tax returns should be kept by each spouse. We recommend keeping returns for at least the previous five years; you may also require documents to assess the cost basis of any assets you maintain. When negotiating a settlement, it's critical to be aware of the tax consequences. If you file jointly, one of you (if not both) will be treated as a single taxpayer, subject to a higher tax rate. In the case of dependent children, the head of household filing position will most likely favor the custodial parent.


  • Debts Do Not Disappear During Divorce

In most cases, the individual who owns the property is responsible for paying the mortgage or other obligations associated with it. Is this to say that the other spouse is not responsible for a shared debt? Certainly not. Even if the spouse who takes over the property pays off the previous mortgage, both spouses are still responsible for the obligation. Your financial responsibility to your creditor cannot be terminated by a divorce decision.

Another issue is credit cards. Do you know how much money is left on the cards? In whose name are the cards? Is the non-debtor spouse allowed to charge on the card? Should you make a call to get your billing rights revoked?


  • Who Pays Taxes, Child Support, And Spousal Support?

Spousal maintenance, often known as alimony, is sometimes mistaken for child support. Whoever gets alimony, the amount the spouse receives will be taxed. The income of the spouse paying spousal support will be reduced and he or she will be able to deduct these funds from his or her federal income tax. Child support is not taxed to either the spouse who pays it or the spouse who receives it. In some states like Illinois, child support is calculated using a state-mandated formula. While there is a formula for spousal maintenance in Illinois, it is something that may be negotiated, and the spouse claiming the need must make a case.

It is immensely better to settle this via discussion than taking the issue to court. Keep in mind that the tax ramifications of divorces may alter at any time. The spouse paying alimony may not be allowed to subtract it from federal income tax, and the spouse receiving alimony might not be obliged to pay federal income tax in certain divorces. This is a significant shift, and you should be aware of it.


  • Seek Help For Your Financial Situation Analysis Before Getting  Divorced

Many people claim that their level of life drops considerably during and after divorce. Unless you change your employment to one that pays more, your income will remain the same as before but with more costs. There are now two houses that must be maintained when there was formerly only one. When you're considering divorce, it's a good idea to have a sense of your financial situation. Individuals who are divorcing want competent financial counsel to ensure that the settlement is equitable to both parties. After a couple has divorced, this support can help them adjust to their new circumstances and plan for a secure financial future.

During a divorce, you need a Certified Divorce Financial specialist who can help you examine the offer on the table and forecast your financial situation for the next couple of years if you sign the agreement. The role of a Certified Financial Planner expert is to help you understand your financial requirements. During this critical life change, a CFP  expert can assist you with investing, retirement, budgeting,  and other financial planning problems.

Take the time to examine your income, assets, costs, and liabilities if you're thinking about or going through a divorce. You can lower your stress levels at this difficult time if you have the right information and assistance.


Photo by engin akyurt on Unsplash


Leave a Reply

Your email address will not be published.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.


Subscribe for daily financial content

Daily articles, financial messages and affirmations to best help you navigate your financial future.