It’s no secret that a divorce can be particularly damaging on either spouse’s finances. Unfortunately, many divorcing couples often go through the experience without so much as a safety or a basic understanding of the repercussions of a divorce on their finances.
While the U.S. divorce rate has been in steady decline over the last 20 years, it’s still estimated that more between 40% to 50% of all marriages in the country end in divorce. But among baby boomers, divorces have actually been on the rise, earning the nickname “gray divorces.” For these former couples, the cost of a divorce can be especially high as they no longer have time to recover from the financial damage they incur.
In any case, the consequences of a divorce can be significant for anyone going through it. To keep your finances in good health, be sure to consider the following factors.
Get Professional Help
A divorce can take a huge toll on your emotions. One moment you’re emotionally charged with fear or anger, the next you’re feeling sad and lonely. This rollercoaster of emotions is a perfect recipe for making bad decisions. The best way to minimize the likelihood of making costly mistakes is by getting professional advice from a divorce lawyer and financial advisor. This is especially important for women, who still tend to be more negatively impacted by divorce than men, suffering serious setbacks to their standard of living.
Get Insurance for Support Payments
For divorces that involve children, one partner is usually tasked to pay child support and/or spousal support for the other. The parent taking greater responsibility for raising the children is usually the recipient of such support.
But the challenge with making these payments over a long-term period will always be liquidity. Chances are high that the paying ex-spouse could soon find himself unable to pay for support, which in turn means that their former partner will have to shoulder the financial burden of paying the bills.
This is where financial advisors can come in by running estimates on marital assets and taking into account factors like liquidity, taxes, and risk to help a divorce lawyer reach a realistic settlement.
Consider Tax Implications
Taxes are an often overlooked factor in many divorce cases, with many ex-spouses focusing only on dividing assets. For instance, assets of $1 million in a 401 (k) are worth much less than the same amount of money in a taxable account. This is because a 401 (k) will ultimately be subject to marginal income-tax rates when used in retirement. In contrast, the latter will be taxed at a lower capital gains tax rate.
If you need legal advice and assistance when seeking a divorce in Texas, and are concerned about what this decision will mean for your finances, don’t hesitate to contact the legal team of the Lyttle Law Firm. Schedule a consultation with a divorce lawyer by calling our offices at 512.215.5225.