Besides its obvious emotional impact, divorce can have a significant financial impact on both spouses’ lives. One study found that while being married increases most people’s wealth compared to that of single people, a divorce lowers a person’s wealth by more than three-quarters. That drop often begins before the divorce is finalized.
Smart decisions during the divorce regarding the settlement can help mitigate this decrease in wealth and improve both your short-term and long-term financial future. You need to consider not just how much money you need to live on your own. It’s essential to plan for your financial security in the coming decades.
One author who has written about divorce and money says that people further need to consider the tax implications of their settlement. What you decide to do with the family home, for example, could have significant tax consequences (as well as other financial impacts, of course). The same is true with how the retirement accounts are divided. Be careful that the decisions that may seem like sound financial choices don’t have tax implications that will cost you later on.
People are often required to make those decisions when they’re in a fragile emotional state or are letting their decisions be controlled by anger rather than practical considerations. Sometimes, the divorce begins to take a toll emotionally and they just want to get it over with. That can lead to accepting a settlement that’s not in your best interests.
That’s why experienced legal guidance is essential, and adding a financial and tax advisor to your team is also wise. All of these professionals can help you work towards the best possible settlement, both for the short and long term.
Source: Black Enterprise, “What You Need to Know About Money and Divorce,” Stacey Tisdale, May 16, 2016