Going through a divorce is a difficult process. The emotional, mental, and physical aspects take a toll on both parties and the family unit. On top of that, the financial side of divorce can be complicated and create additional stress and anxiety for everyone. Throughout the duration of the divorce, you and your spouse will need to make decisions that will impact your finances, both now and in the future. While making these decisions can be difficult, understanding the implications of each choice is important when trying to plan for financial security for both spouses and any children involved. To help you get educated, here’s what to know about the financial side of divorce.
Understanding the Financial Side of Divorce
There are hundreds of small details that need to be discussed regarding finances during a divorce, which is often why spouses decide to hire an attorney. Taking time to prepare for the process can help, but financial aspects of divorce can get messy. Some of the main things that need to be discussed include property, child support, debt, taxes, retirement plans, and alimony.
Dividing Property in Divorce
Dividing marital assets between spouses is one of the lengthiest processes in divorce. There are a few states that have laws in place for how to divide your assets, such as in the case of community property states. This means that assets are divided equally, regardless of outside circumstances. In other states, you’ll need to determine equitable distribution based on certain factors. Marital assets that can be considered financial property include houses, cars, boats, life insurance policies, investments, bank accounts, taxes, vacation pay, artwork, collectibles, college funds, frequent flier miles, and more. To be prepared, it’s essential that you have a cumulative list of all your assets and property so that you can better understand lasting implications of divisions.
Financial Obligations for Child Support
Depending on the custody agreement reached, financial obligations for child support during a divorce can vary. Child support payments are often calculated by the state depending on income and other familial details. If you are required to provide child support, you’re financially obligated to pay it. If you don’t, you may face legal action.
Financial Debts in Divorce
If you have financial debts that need to be repaid during a divorce, you’ll have to determine who owes what, how much, and to who. Get a credit report to see a comprehensive list of debts and then work through them to split them up. If you have joint credit cards, it’s a good idea to cancel them and get separate accounts. If it’s possible, try to pay off the debts before the divorce to avoid ongoing complications.
Resolving Tax Issues in Divorce
There are many tax implications that occur because of a divorce. Financially speaking, this can have a large impact on future payments, deductibles, and withholding. You’ll need to decide who will claim dependents and head of household. You’ll also need to consider deductible attorney fees, non-deductible child support, and any other details that may need attention under current or future tax laws.
Understanding Finances of Retirement Plans
If you or your spouse currently have retirement savings, you may each be financially entitled to half of the amount in the account. There are certain IRS regulations that should be followed to avoid penalties on withdrawing the amount or transferring to a new account but creating a clearly defined division of retirement assets is important regarding the financial side of divorce. During this time, you should also create a plan as to how you’ll continue to contribute to them after the divorce is finalized to ensure a comfortable retirement and future. It may also be necessary to rebalance your investment portfolios to better align with your circumstances.
Financial Implications of Alimony
While it’s not always a financial side of divorce, many spouses may be eligible to receive alimony because of the separation. This is done to help aid the spouse who has lost a substantial amount of income following the divorce. If alimony is required, you are legally and financially obligated to pay it throughout the duration of the term.If you and your spouse are separating on good terms, it’s beneficial to try and determine the financial delegations before working with an attorney. This can help reduce the overhead cost of divorce by thousands of dollars. However, mediation is often necessary to avoid making financial mistakes.
How Divorce Financially Affects Each Party
Divorce financially affects everyone differently. The degree to which a party suffers generally depends on income earnings per spouse, custody agreements, and how the assets are divided during mediation.
The Financial Side of Divorce for Men
The degree to which men suffer financially from divorce depends on how much of the income they contributed. As a sole earner, men don’t tend to suffer as much as women financially speaking—especially if they don’t have custody of children. If the family income was more evenly divided, this can cause a financial strain for men after divorce.
How Divorce Financially Affects Women
Women usually suffer more from divorce in financial aspects, especially if they were not the sole income producer in the relationship. This results in lost income, lost health insurance, and more. If her spouse is not contributing the full child-support or alimony payments, financial problems increase.
The Financial Impact on Children of Divorce
Children are often the most impacted during divorce and can carry financial burdens as a result. Not only will their time spent with each parent decrease, but they’re likely to experience fewer opportunities due to strained finances and details of custody. Children may also lose insurance coverage and may face college without financial support.
If you’ve recently gone through a divorce and are looking for guidance on financial planning, wealth management, retirement planning, and more, contact William Bevins. As an experienced financial advisor, he aims to properly manage your wealth so that it offers security for you and your family both now and in the future. Your financial journey begins with choosing the right Franklin, TN financial planner. Contact William Bevins today at [email protected] or by calling (615) 469-7348.