Divorce can take a toll financially on both spouses, with this immediate financial burden resulting directly from the separation of the household. When a couple splits, they end up doubling their housing, utility and other regular costs. After this, there is the property division. This can stifle each spouse's progress toward long-term goals like retirement or the children's education.
Money's recent article, "Keep a Divorce From Killing Your Finances," offers several important tips for those going through or recently completing the divorce process.
Monitor assets in your divorce settlement: If you're in the midst of a divorce, examine the type of assets that you receive as part of your divorce property settlement. The reason for this is your cash flow. Even in cases where the math demonstrates an equal split between the two parties, one spouse could get stuck with a non-liquid asset, which might end up being difficult to liquidate if cash flow becomes a problem.
Factor in an asset's taxable status: For many couples, a $100,000 brokerage account—for which you'll only pay tax on capital gains or dividends—might be of greater value than a $100,000 tax-deferred retirement account because you'd have to pay income tax on withdrawals from that type of account.
Keep an eye on taxes and their effects: Taxation influences continuing income. For example, the payment of alimony is tax deductible, but the receipt of alimony is treated as ordinary income. However, child support is not taxable to the recipient, which may change the way you prepare your annual tax return and the amount you owe the IRS. Make sure you keep this in mind the next time you file your taxes.
Review and update paperwork: Once the divorce is final, both ex-spouses need to make sure to update all aspects of their financial lives. This includes beneficiary designations on pensions, 401(k)s, and life insurance (if not part of the settlement terms), as well as all estate planning documents—like your will, powers of attorney and trusts.
Reference: Money (March 1, 2016) "Keep a Divorce From Killing Your Finances"
