Financial Upsides Of Divorce

divorce preparation tips

Often we talk on the blog about the challenging financial issues posed by divorce. Today we thought we would share some actual financial upsides associated with divorce.

First, you have total financial control. During the marriage, you and your spouse must work together to secure present and future financial plans. That requires not only a shared vision of your path together, but also a level of trust and respect. Spouses often find during divorce that their mate hid financial information, secreted funds or made questionable investments.

Some relationships have an unequal power dynamic that inhibits the role of one spouse. After divorce, a spouse no longer has to worry about someone working against his or her interests. You can budget as you like, earn as you please and plan the lifestyle you desire.

Second, you can gain a retirement nest egg without penalty or tax complications. In marriages where one spouse earns the principal income, that spouse usually is the only one with large pensions or retirement funds. It is possible that the spouse also used some income or assets to structure retirement accounts jointly. At divorce, the lesser earning spouse has a marital share in all of these funds, even those in the name of the other spouse.

Through the use of a Qualified Domestic Relations Order (QDRO), the court can apportion part of these funds to the lesser earning spouse who can simply roll them over into an individual retirement account with no capital gains or income taxes and no early withdrawal penalties. Of course, if that spouse decides to then take part of that fund in cash right away, that spouse would have penalty and tax issues.

Third, you can make smarter investments. If you find out your spouse managed money poorly, you can improve on that with your own money. You can choose the type of fund you want and whether you want high risk or low risk investments.

Fourth, you can help your child with more financial aid. As we discussed in a recent post, federal financial aid depends on the income of the parents when the child applying is still a dependent. If the parents are divorced and one parent makes substantially less, that parent alone can file the forms necessary for financial aid so long as that parent can claim the child as a dependent for federal income tax. The lower income means more available aid.

Fifth, you may have a much larger Social Security retirement. If you were married for at least ten years, you have a right to half of your spouse’s Social Security benefits. If you wait until full retirement, and your spouse made way more than you, you can get a huge boost in regular monthly retirement income.

Finally, you have a clean financial slate. Divorce does mean starting over in many ways, and you could find yourself confused as to what you will want to do. But this can be liberating too. You can prioritize your finances, you can set specific goals and budgets, choose a lifestyle that suits you. When you start over, you find you may not want some of the monthly financial baggage you carried – you get down to essentials.

While divorce has financial challenges, it also has its financial perks.

If you have questions about finances and divorce, contact us – we can help.

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