Cost of Divorce: Five Financial Realities
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You may not be able to avoid the emotional upheaval that comes with divorce, but you can be realistic and practical in how you plan for your future.

Here are some challenges you may confront and suggestions for how you can take better control of your finances during this challenging time.

1. Personal Expenses Related to Divorce

It clearly costs more to maintain two households than one, but some new expenses may be unexpected.

For example, you may want to keep your marital home to maintain stability, continuity, or even positive memories. But keeping the home will probably mean that you will be responsible for mortgage payments, repairs, assessments, taxes, insurance, and other expenses. Going forward, prepare to cover ongoing costs like utilities, cable TV, and broadband bills. Depending on who ends up with what, you may also have to replace furniture and household equipment. On the other hand, if you move, you may have to take on all of these expenses for another home.    

Divorced parenting also may involve a new set of costs such as daycare, individual college saving accounts, and gas or airfare for travel between two homes.

Your health insurance needs may change, too. If you will be losing your health insurance benefits as a result of divorce, consider COBRA Continuation Coverage, which may be available for up to 36 months after divorce as long as you provide the proper notice to the plan administrator and elect the coverage. You can also purchase insurance through HealthCare.gov during open enrollment periods.

2. Tax Issues Related to Divorce

You’ll likely need professional help to sort out any tax implications of dividing assets and income. For instance, if you and your spouse liquidate stocks or other property, you may have to pay capital gains.

Construct a clear picture of the parts of your income that will be taxable after a divorce. Child support may be exempt, but alimony receipts are probably not. Note that the custodial parent may be the only one who can claim the tax exemption and child credit for dependents.

Some welcome news, however, is that you may now actually fall into a lower tax bracket.

3. Legal Expenses Related to Divorce

Lawyers' fees mount up quickly, which may be one reason why most divorces are settled out of court. Make sure you hire qualified attorneys, and never squander expensive professional time on discussing non-legal, personal matters with your legal team.

4. Apportioning Assets During Divorce

When it comes to apportioning assets, start by taking inventory of all the current marital property you can identify, including cash, checking and savings accounts, retirement and brokerage accounts, annuities, real estate, and Social Security and employer-funded benefits.

You may need to revise your will or designate different beneficiaries for insurance or retirement policies like individual retirement accounts (IRAs). 

A qualified domestic relations order (QDRO) is a court order that creates or recognizes the existence of a qualified individual’s right to receive a portion of a retirement plan. Each plan — whether a 401(k), 403(b) or other pension — probably requires its own QDRO.   

These are all issues that you will probably want to discuss with a qualified attorney.

5. Settling Joint Debts during Divorce

Just as marriage partners usually share assets, they also usually share debts and liabilities. Make sure you know the outstanding balance of every debt that you owe jointly with your spouse, and have copies of both the loan agreement and recent statements for each debt.

You also should recognize that a court order requiring one spouse to pay the full balance owed on a joint debt does not necessarily prevent the creditor from taking action against either or both spouses if that debt is not paid as provided in the loan agreement.

You will want to monitor and nurture your credit standing, so request a report from each credit bureau. Also check your accounts for any unusual outgoing payments to make sure you’re not unwittingly footing the bill for a shared expense. Above all, continue to pay all your bills on time and maintain good credit that will support you in the next chapter that lies ahead.

Read our Divorce Checklist as a guide to help prepare for the financial realities of a divorce.

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This information is general in nature and is provided for educational purposes only. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation.