Life doesn’t end after a divorce—and neither do financial obligations. While many divorcing couples may focus on getting a larger share of the pie, this isn’t necessarily the best approach. When divorcing, it’s important to plan for life after a divorce. This means creating a reasonable budget and realistically considering one’s financial future. In this article, we’re going to look beyond equitable distribution and discuss some of the financial concerns during a divorce.
Tax Issues
How assets are distributed can have tax implications. In addition, if the family home or other property must be sold as part of the settlement, those sales may be subject to various taxes depending on how they are handled. No one (except maybe accountants and IRS agents) likes thinking about taxes. However, ignoring the tax implications of how alimony is distributed, when the family home is sold, etc., can be costly. A good financial planner or accountant versed in divorce issues will be able to discuss the various tax implications of any possible agreement. If they don’t, it’s important that the divorcing parties ask. Divorcing couples who are able to discuss their finances more openly and who are willing to work together may be able to avoid some tax pitfalls so they aren’t penalized for separating.
Children’s Education
Divorce isn’t inexpensive and it can have a large impact on the future. The financial implications of divorce can extend further than just the divorcing couple, When one home becomes two homes, expenses increase. This may mean there is less money to save for college. For parents who want to help pay for their children’s college educations, it’s a good idea to investigate the best way to set money aside. Will one parent handle college costs? Will both set aside an equal amount? Again, how this is done can have tax implications for either party and an in-depth conversation about your goals with your accountant will be necessary.
Retirement
Depending on the structure of the household before divorce—both parties working vs. one party working—retirement may or may not be an issue. When IRAs and 401Ks must be divided, however, it’s important to not only consider one’s future retirement but also one’s future earning potential. In addition, certain retirement accounts have penalties associated with them for early withdrawal or other actions. If you are nearing retirement age, this should be on the top of your list to discuss with your accountant or financial planner.
This is just a short overview of some possible financial concerns. The Balance covers some more, however, even their list is not exhaustive. If you have financial concerns not mentioned here, make sure to discuss them with your lawyer and your accountant.
During a litigated divorce, each party will likely have their own financial advisor who advocates on their behalf. This can create an antagonistic back and forth with each partner attempting to get “more” and with little concern with the financial future of the other partner. Creating a realistic budget and being open about one’s finances can help a judge make a fair decision in what is likely to be a difficult situation.
For those who opt for a collaborative divorce, the expectation is that each partner will openly and willing work with a financial neutral. This individual keeps the best interest of both parties in mind and helps the separating couple create a financial agreement that is fair and meets everyone’s needs.
The divorce process can be confusing, especially once it’s time to deal with finances. If you’re considering a divorce, make sure you investigate all the options open to you, such as a courtroom divorce or a collaborative divorce. Consulting with a skilled Tampa divorce lawyer can help you better understand the various divorce processes and how finances are handled in each. Set up a free consultation today.
