Understanding the Financial Consequences of Divorce

Parting ways with your spouse can bring many changes to your life — including your financial circumstances. Notably, going from a household with two salaries to one may require careful planning and many lifestyle adjustments. While the financial consequences of divorce can be steep, it’s important to understand the economic impact in advance so you can best prepare.

Here are some of the ways divorce can have an impact on your financial situation:

The Costs of the Divorce Action

Among the first financial consequences of divorce that couples face are the immediate costs associated with the legal action itself. Expenses that you face during the divorce process can include the following:

• Attorney fees
• Filing fees
• Process server fees
• Court costs to file motions
• Costs of hiring experts
• Fees for financial professionals and accountants

It’s best to consider ways to keep the costs of your divorce at a minimum. While certain cases may require litigation, some divorces can be resolved without judicial intervention. Mediation and the collaborative divorce process can keep your case out of the court room — and reduce your overall expenses.

Property Division

Missouri follows the rule of equitable distribution when it comes to dividing marital property in divorce. Any assets acquired during the marriage are considered the property of both spouses — and subject to division. While Missouri law requires that property be divided fairly, this can still come with significant financial consequences. Spouses who have been married for many years or decades may have a substantial amount of property to divide, including real estate, retirement accounts, vehicles, personal property, business interests, and more.

Spousal Support and Child Support

One of the most obvious financial consequences of divorce concerns spousal support and child support. If you’re the paying spouse, child support and spousal support can significantly cut into your income after divorce. It’s essential to note that under the current law, spousal maintenance is not taxable and the party paying does not receive a tax deduction. Similarly, child support payments are not tax deductible by either party. If you are the spouse paying support, be sure to negotiate trading other assets to reach a fair agreement.

Increased Living Expenses

Divorce can increase your living expenses considerably. While it can be financially challenging to go from a household supported by two salaries to one, it’s vital to create a new post-divorce budget that allows you to stay within your means. It may also be beneficial to work with a financial advisor who can evaluate your costs, see where you can cut back, and assist you with developing a plan that helps ensure you stay on track.

Impact on Your Credit Score

Although filing for divorce does not directly impact your credit, many of the actions taken by you or your spouse during the process can. For example, if you and your spouse shared a credit account and they failed to make a payment you had agreed they would be responsible for, your personal credit score may decrease. Your credit score might also be impacted if you close any joint accounts or open a new individual one. It’s crucial to monitor your credit reports closely during divorce to identify any discrepancies or unusual activity — especially if your spouse is an authorized user on any of your accounts.

Tax Implications

When considering the financial consequences of divorce, it’s important not to ignore the tax implications that can come with transferring property and dividing assets. In addition, divorce can also affect your tax filing status and how you file your taxes. You will also have to update your tax withholding with your employer and determine who will claim the dependent child.

Health Care Coverage

If you were on your spouse’s health insurance plan, you will need to find new coverage once the divorce has been finalized. Although you might be eligible for COBRA coverage, this can be very costly. In addition, it would only provide you with health benefits for 36 months. It’s critical to explore what other options you might have, including obtaining health insurance through your employer or the Affordable Care Act marketplace. Loss of health insurance should also be considered when negotiating a divorce settlement — often, the spouse with health insurance would make a lump sum payment to the other to cover future health costs for a period of time.

Contact an Experienced Missouri Divorce Attorney

If you are concerned about the financial consequences of divorce, a knowledgeable divorce attorney can best advise you regarding your specific situation and assist you with negotiating a fair settlement. Divorce and family law attorney Mark A. Wortman provides experienced representation to clients in the greater Kansas City, Missouri area who are facing divorce and family law matters. To schedule a confidential consultation to learn how he can assist you, please contact him today online or by calling (816) 523-6100.