While divorce has more financial negatives than positives, post-divorce life does have some upside on the financial side, as this article in U.S. News indicates. We thought we would share their insights.
First, when you manage your own household separate from your spouse, you have real freedom and control. You do not have to worry if your spouse has secreted funds or misspent marital assets or ran up credit card debt. You know all that happens with your life financially and can make sound financial choices. With more certainty and less spending to worry about, you can budget more easily and more reliably.
Second, if you use a QDRO to receive part of your former spouse’s retirement, you have a short window to withdraw the funds early (prior to retirement) without an additional tax for early withdrawal (you still need to pay income tax). While it is best to leave retirement funds for retirement, if you really have a cash flow problem, you have the ability to do so without incurring the additional tax penalty.
Third, you have control over your investments. Statistically, men tend to direct the investment portfolio in a marriage, and those choices may not mesh with your choices. After divorce, only you have control over how you want to invest your savings, so the path you choose will mesh with your priorities.
Fourth, you gain your former spouse’s Social Security benefits. If you were married for at least ten years, when you become eligible for Social Security, you can elect to receive your former spouse’s benefits if that amount would be higher than yours. Typically, if the other spouse worked more and made more, that spouse will have a higher Social Security benefit. But be warned: if you take the benefit too early, you might jeopardize how much you can receive at full retirement age.
Fifth, you get a chance to start over. Divorce reveals the financial health of your household, and often it shows a less than optimal path of spending and investment choices. Having a clean slate gives you the opportunity to make sound budget choices, new lifestyle arrangements and a long-term plan for financial well-being.
While divorce can be a painful and financially challenging process, if you are aware of some of these positives it can help you jump start the next chapter in your life.
If you have questions about finances and divorce, contact us – we can help.