Understanding how the financial impacts of divorce can impact your immediate and long-term economic future is essential if you are considering divorce. Divorce is emotionally and financially challenging, so going into the process informed and prepared is the best way to prevent surprises that can make a difficult situation even worse.
The divorce process itself can be expensive. The more complicated or contentious the divorce is, the more costly it will be. Although it may be easier said than done, working together is the best way to keep attorney fees and court costs down. If you and your spouse can trust and cooperate, you can reduce costly divorce litigation through mediation. In addition, other financial impacts must be considered during a divorce settlement.
6 Ways Divorce Can Impact Your Financial Future
1. Your Standard of Living
It's not unusual for the standard of living of both spouses to drop in the first few years after a divorce. Depending on the circumstances of your divorce, you may find yourself in a situation where you have to make drastic changes to your lifestyle to make ends meet. Depending on the division of assets, you may have significantly less money than you had before the divorce. This means you will need to adjust your budget and lifestyle to accommodate the loss of income.
2. Your Health Insurance
If you relied on your spouse's insurance while married, you are responsible for obtaining your health insurance coverage once your spouse no longer covers you. If you don't have insurance options through an employer, The Affordable Care Act Health Insurance Marketplace is an excellent place to start as you look for private health insurance.
3. Your Credit Score and Loans
Divorce can significantly impact your credit score, both in the short term and long term. In the short term, dividing assets and debts can lead to missed payments on credit cards, mortgages, and other loans. This can cause your credit score to drop significantly. Depending on the type of loan you are applying for, lenders will consider various factors when deciding. First, lenders will look at your credit score and credit history. If you have a history of late payments or if the divorce has negatively impacted your credit score, it could make it more difficult to obtain a loan.
4. Tax Consequences
Generally speaking, the Internal Revenue Service (IRS) considers divorce a major life event, and the tax consequences of a divorce can be significant. All assets are not equal. For example, $100,000 in an IRA differs from having $100,000 in a checking account. Accounts with pre-tax contributions and tax-deferred growth come with a tax liability. The spouse who takes the checking account will have the entire amount to spend, while the spouse with the IRA will have a tax liability.
5. Your Retirement Plans
Depending on the specifics of your divorce, you may have fewer resources to put toward retirement savings. Retirement plans are often considered "marital property" and divided in a divorce settlement. If you are the retirement account owner, having the assets divided can mean you have to contribute more now to get the account balance back to the value it once had. This can put an even more significant strain on your finances, especially if you're also paying alimony and child support. If you are older and getting divorced closer to retirement, this can significantly impact when and how you retire.
6. Your Business
Business owners sometimes don't realize that their ex – even one who has never been involved with the business – may be entitled to a share of the business during a divorce. The court considers all assets and is unlikely to distinguish between business and other assets unless a pre or postnuptial agreement states how property will be divided.
A family court is likely to try hard not to disrupt a business, but they sometimes decide that the only way to divide assets is to break it up or sell it. This can be devastating and have profound financial implications for business owners. Divorce can also lead to one party buying out the other. An experienced divorce attorney can help you understand your options and make informed decisions about your business.
Hire a Skilled Team to Protect Your Financial Future
Divorce is never pleasant, and it's hard to be prepared for the many ways it can impact your life. Money mistakes during a divorce can be costly and often occur when there is a rush to reach a settlement. Preparing your finances for divorce may be the last thing on your mind, but following a few tips can help you avoid common problems that can occur, even during an amicable divorce.
In addition to hiring an experienced divorce attorney, working with an accountant or financial advisor is essential to help you navigate long-term thinking about your finances. You'll need to develop a realistic budget and retirement plan and consider tax implications when dividing assets. Although you may assume that the more professionals you hire, the more your divorce will cost, this is not necessarily true. In the long run, having the right experts on your side will cut litigation costs and save you from making costly financial errors during your divorce settlement.
The Leavitt Family Law Group is Here to Help
When you need a family law attorney in Henderson, Nevada, call the Leavitt Family Law Group at 702-447-0084 or contact us online. We serve clients in Henderson, Las Vegas, and surrounding communities.
The Leavitt Family Law Group team is ready to help you with aspects of your divorce, from child custody to spousal support and asset division. We will work hard to protect your rights and secure the best outcome for you and your family.