We all stress about money to one degree or another. No matter how much we make, there’s always a reason to scrimp and save, or bills to worry about. Money issues can be a marriage killer—maybe you’re a frugal saver but married a reckless spender—but these problems don’t end when you file for divorce. In many cases, when the split is on, your financial troubles are just beginning. Because divorce isn’t stressful or draining enough on its own.
Who gets the house? Who gets the car? Who gets those shoeboxes full of cookie cutters you two collected at garage sales over the years? Dividing the shared assets and belongings from marriage is huge part of the divorce process. How this happens depends a great deal on where you live.
There are two kinds of states: community property states and equitable distribution. Community property states view all assets accumulated during a marriage as belonging equally to both parties. No, this doesn’t mean everything is split in half down the middle; property is ideally divided in a fair and evenhanded fashion.
In equitable distribution states, which are the majority, property acquired during a marriage belongs to the spouse who earned it. When divorce goes down, the two parties, usually with the help of attorneys, mediators, or the court, sit down to hash out how to divide the marital spoils. The general goal in these situations is for each party to emerge on relatively equal footing and maintain a lifestyle similar to before divorce.
Splitting marital assets in a divorce is all well and good. After all, you get stuff out of the deal, that’s great. But there is another side to this coin. Just like how you and your spouse divvy up the money you have, you also divvy up the money you owe. A bit more of a bummer to be sure.
The two of you, and whoever else is involved, must determine who owes what. You can agree to pay off the debts now—perhaps by selling a family house or something along those lines. One party or the other can agree to take on a particular debt in exchange for other assets in the division of property. You can also opt to share debts equally if you’re so inclined. Much of this depends on how assets are split, how amicable the divorce is, and the respective resources.
One important thing to keep in mind is that divorce doesn’t automatically impact any joint financial agreements entered into during marriage. Say you and your spouse get a home or auto loan in both of your names. Signing a divorce decree doesn’t change that and you remain on the hook.
Maybe your ex agreed to cover one of these shared debts. If that happens, fantastic. If not, it can tank you and your credit. Part of a deal like this usually includes a clause that a loan must be refinanced in one name alone by a certain date, but it’s in your best interest to keep an eye out and make sure payments get made and your name gets erased off of debts.
Division of property and debt are the headlining financial issues when it comes to divorce—they, of course, have the most substantial impact your life moving forward. But they’re not the only hurdles to clear. One less obvious side of divorce, one element too often overlooked that can come back and smack you in the face, is the inherent tax implications.
Since you’re no longer married, after divorce your filing status definitely changes. Sorry, you don’t get to check the married box this year. Capital gains taxes may come into play if you get a substantial chunk in the division of property. Some of your divorce legal fees may even be tax deductible.
Then you have to consider any family support payments. Child support and alimony each have their own tax implications. If there are kids involved, which parent gets the dependency exemption? In most cases, this goes to the custodial parent, and it can mean big bucks.
Of the two kinds of support, spousal support has the greatest impact on taxes. If you pay alimony, these payments are tax deductible, though if you receive, you must claim it as taxable income. Either way, this is huge. On the other hand, child support payments are neither taxed nor taxable.
Not a shock to anyone, kids are way expensive. It costs hundreds of thousands of dollars, if not more, to raise children until they’re 18. And if we’re being honest, they’ll probably hang around much longer. You’ve got to cover food, shelter, medical care, renting a limo for prom, maybe secondary education, and so, so much more. And when divorce rolls around, child support pops up as well.
If you’re not the custodial parent, one of the biggest continuing costs you see after you sign on the dotted line and get judge’s blessing to end your marriage is child support. In most cases, these payments, designed to provide for your spawn, last until 18, but in certain cases, they can persist until 21 or even beyond.
The parent with the most overnights generally receives the payments, though child support is often payable even in 50/50 shared custody arrangements. Most often, the parent with the greater income foots the financial burden of child care, medical bills, education, and the like.
These are just a few financial barriers and roadblocks you may encounter along the highway to divorce. Conflicts over money can have a detrimental impact on a marriage and often cast a long shadow after the fact. It may be in your best interest to consult an accountant, or at least a lawyer who has been through these fights before. You want to start your new life on the soundest economic footing you can wrangle.
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