Even in the most amicable situations, going through a divorce can be emotionally draining. Dividing assets, discussing child custody and support and planning for a new lifestyle are all significant life decisions. Navigating a divorce is rarely simple, and your financial situation can be one of the most essential elements to understand as you navigate a divorce. However, we are here to take some of the complexity out of the equation.
Understanding & Safeguarding Your Assets
Establishing a Budget
You’ll need to assess your financial situation and create a budget to support your new lifestyle. Start by calculating the income you can expect, and then factor in your expenditures. Don’t forget to include your divorce as a one-time cost that can sometimes be quite significant.
Income and Other Payments
- Retirement fund income
- Social Security
- Investment Income
- Child support
- Renting or purchasing a new home
- Child support
- Childcare costs
- Alimony payments
- Basic living expenses, including utilities, food, household costs, etc.
- Health insurance
Protecting Your Assets
No matter how good your relationship is with your soon-to-be-ex, you should consider dividing and safeguarding your assets to avoid unnecessary problems.
- Remove yourself from any joint credit cards and replace them with personal ones.
- Set up a separate banking account and separate your money as soon as possible.
- Get a copy of your latest bank statements, tax returns and any joint investment accounts.
- Update personal passwords and get online access to any accounts owned jointly.
- Consider freezing investment assets temporarily if necessary.
- Update your beneficiaries.
Making Decisions About Social Security
Although your finances may change, one thing that remains the same is your ability to claim spousal benefits for Social Security even though you’re no longer married. Provided that you were married at least 10 years and haven’t remarried, once you’re 62, you can either claim your own social security benefits or up to 50% of the equivalent of your spouse — whichever is higher.
Rethinking Investment and Retirement Accounts
It’s important to reassess your financial strategy when divorcing — including how you plan to split assets. Even if you plan to do a 50/50 split of your investment and retirement accounts, the tax treatment of each account plays an important role when determining how assets get divided.
- Determine the after-tax value of each account before divvying up assets.
- Once assets are divided, reassess your asset allocation and risk tolerance for your new situation.
- Avoid selling investments in favor of splitting assets between individual accounts to avoid triggering capital gains tax.
- Consider the impact of any early withdrawal from annuities, which can impose strict penalties.
Knowing the Taxes Implications
Discussing with your spouse who is filing for what can help avoid much confusion. Individual states apply their own tax rules, but here are some key things to consider per IRS regulations¹:
- If your divorce isn’t finalized by the end of the year, you may still need to file jointly.
- Amend your W-4 at work to reflect your marital status and adjust withholdings.
- You may qualify for a Head of Household deduction if you have custody of dependents.
- Alimony payments aren’t tax-deductible, but recipients don’t have to pay taxes on money received.
- Transfer of homeownership is not generally considered a taxable event.
Getting the Financial Help You Need
There’s no need to go it alone when navigating a divorce. We can help you address your concerns with a comprehensive plan that covers both your immediate needs and enables you to identify and pursue your goals for the future, including:
- Ways to minimize taxes for greater potential financial outcomes.
- Recommendations for separating investments and retirement accounts.
- Creating and maintaining a financial budget.
- How to safeguard yourself and your assets.
- Preparing for retirement.
- Planning for large expenditures and financial decisions.
If you’ve hired a lawyer during the process, we can also work with them to develop a divorce strategy that incorporates your immediate and long-term goals, helps put your mind at ease and gives you a concrete path toward financial independence. We’re always here when you need us. Let us know how we can help you plan for a better future.