Aside from causing tremendous emotional turmoil and stress, a divorce can be particularly dangerous to either spouse’s finances. Both men and women face an equal amount of financial risks during and after a divorce, making it necessary to plan accordingly.
Below are 4 financial risk areas spouses should be aware of when going through a divorce and even after the divorce proceedings have ended.
A Budget, Or Lack Of It
Let’s face it, it’s rare for divorce proceedings to not be expensive. Whether you’re in the process of a divorce or have been separated for months, you need to gather as much of your financial information as you can to determine your assets and liabilities.
Next, you need to create a budget, identifying debts to be paid, costs that need to be absorbed (e.g. mortgage or car payments), and assets that can/should be divided.
You also need to plan for the future of your children. How will you take care of college? Will you and your ex split the expenses of raising your kids.
Alimony (Spousal Support)
After a divorce, it’s common for one spouse to pay alimony to the other, not including child support. But while child support is non-tax-deductible, ex-spouses who pay alimony can deduct that amount on their tax return, which means the person receiving alimony must also report it as income for tax purposes.
For some people, alimony and child support can be the only form of income they receive, which rules out the possibility of saving for retirement.
But it doesn’t have to be this way, not when individuals who receive alimony can contribute as much $5,500 per year or the amount of alimony received—whichever is less. And for people over the age of 50, the contribution limit increases to $6,500 per year.
For more information about these contributions, consider talking to a tax advisor to discuss your eligibility.
Social Security Benefits
If claiming Social Security benefits is confusing for married couples, it’s even more complicated after a divorce.
For starters, you can only claim spouse benefits on your ex if you were married for at least 10 years. And if you decide to remarry, you’re effectively waiving the ability to claim benefits on your ex. This may turn out to be disadvantageous if there’s a significant gap between you and your new partner’s earnings, and your ex’s earnings.
Investments, Or Lack Therof
A divorce can throw a wrench in your current financial holdings and how much money you may need in the future. This means your investments have to change accordingly to insulate yourself from these new risks. It’s a good idea to talk to a financial advisor to reassess your risk tolerance and your portfolio’s current lineup of equities based on your current and future income needs.
If you, or a loved one, are going through a divorce and need an explanation of these financial risks, or simply want to know the financial cost of a divorce, schedule a consultation with family law attorney Daniella Lyttle to discuss your financial and legal options. Call the Lyttle Law Firm today to find out how we can help you.