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Did you know money is the number one cause of disagreements between married couples? While most people are prepared for the emotional impact of divorce, they aren’t always ready for the financial effect of it. This makes it crucial to understand the ways that divorce could affect your finances.
Tax Consequences
A spouse who does not work or makes a lower income than their partner needs to consider the tax consequences of divorce. They often rely on savings bonds, mutual funds, and other assets to make up for the loss of income from the other spouse. However, these assets can have tax consequences.
For instance, you need to pay income tax to receive retirement assets. This can significantly decrease the amount of money you receive from retirement benefits. You may also need to pay other penalties.
Another tax consequence comes from filing separately. When you file your taxes jointly, you could save money on your taxes. Your divorce requires you to file separately, which comes with a financial burden. If you have children but don’t declare them as a dependent on your taxes, you will also have more taxes to pay. Only one parent can declare dependent children.
Division of Estate
Before your divorce, you might have a significant amount of money in real estate. But after your divorce, that could change. In Arizona, all property obtained during the marriage is communal property. Therefore, you and your spouse must split up your real estate.
This includes business property, rental properties, and many other assets. If you and your spouse can’t agree on the asset division, it’s up to the court to decide. You may need to sell some of your assets, which could have a significant impact on your finances.
Marital Debt
Your divorce can change the amount of debt in your name. Typically, debt is handled the same way property is handled. If you have any joint debt, you and your spouse could be responsible for paying the debt. It doesn’t matter if you rarely used a joint credit card; you still might be accountable to pay down the amount owed.
Credit Scores
Many people getting divorced don’t realize how their divorce will affect their credit. Officially, filing for divorce won’t directly change your credit score. However, the financial upheaval that comes along with divorce absolutely can impact your credit. For instance, if you’re late on a payment because of changing financial circumstances, or if there’s confusion or disagreement over who is responsible for paying which bills.
In addition, if you cosigned on a spouse’s loan when you were married, took out a loan together, or are listed as a joint owner of an account, those may still appear on your credit after a divorce and your spouse’s late payments may hurt your credit.
Child Support and Alimony
Alimony can also affect your finances. If you meet certain criteria, you could be responsible for paying for or be eligible to receive alimony. Usually, alimony is not permanent. Rather, it gives one spouse an opportunity to earn more money or get more education. For the spouse paying alimony, the financial burden can be significant.
A divorce involving children can be very complex. In addition to determining custody, you need to come up with a child support agreement. Typically, one parent is responsible for paying child support. The amount of child support varies. It’s dependent on the income of the parent, the needs of the child, and the amount of time each child spends with the child.
Prepare For Your Divorce
Many people find themselves struggling with divorce and the financial implications that come with it. Through the help of a family lawyer, you might be able to overcome some of the financial effects. By fighting for alimony, fair child support, and other details, your attorney can minimize the financial impact of your divorce. The end of your marriage doesn’t need to leave you in financial ruin.
Need assistance navigating the financial pitfalls of divorce? Call DeTommaso Law Group, LLC today at (908) 274-3028 to discuss your case.