Good question, as a divorce does more than divide your money in half.
It takes a toll financially on both spouses.
The immediate financial burden results directly from the separation of the household.
After this, there is the property division.
This can stifle each spouse's progress toward long-term goals like retirement or their children's education.
Money's recent article, titled "Keep a Divorce From Killing Your Finances," offers several important tips for those going through or recently completing the divorce process.
While you will want to read the original article, here are a few key takeaways to whet your interest:
Monitor assets in your divorce settlement
If you are in the midst of a divorce, then examine the type of assets you receive as part of your divorce property settlement.
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 will only pay taxes on capital gains or dividends—might be of greater value than a $100,000 tax-deferred retirement account because you would pay income tax at ordinary income rates 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.
No, I am not kidding.
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), not to mention all estate planning documents.
Think last will and testament, financial power of attorney, advance health care directive and revocable living trust.
Divorce is no fun for anyone involved.
Contact your estate planning attorney as soon as the final decree is issued.
This will help you get back on track ... and enjoy some estate planning peace of mind.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Money (March 1, 2016) "Keep a Divorce From Killing Your Finances"