Financial upsides of DIVORCE
Atime for new beginnings, January is often referred to as “divorce month,” when couples who struggled through the holidays choose to part ways or at least begin talking with a lawyer about their situation.
Divorce can be costly and stressful but presents benefits both tangible and intangible. You may be happier on your own and healthier if you were unhappily married. Dissolving a marriage can lead to some surprising financial incentives.
Taking control of the purse strings
“For couples where one person handles money differently than another, divorce can be a godsend,” said certified divorce financial analyst and certified divorce specialist Aviva Pinto, managing director at Wealthspire Advisors in New York City. “For example, a husband who gambles or who spends on credit cards and racks up a lot of debt can destroy the credit of their spouse. By divorcing, the woman has the chance to go out on her own, establish her own credit and take control of her finances.”
In a circumstance like this the more fiscally conservative person will have to make sure in the divorce stipulation that the spouse will be responsible for their debt should something from the past creep up that was unknown going into the divorce, Pinto said.
“Unfortunately both parties are responsible for debt that was accrued during the marriage regardless of whose debt it was,” she said.
“While it isn’t always a good idea to withdraw from your retirement account, it might just help you to get your life together after the divorce. Just make sure you use the portion that you withdraw wisely.”
George Birrell
Early access to retirement funds
Aside from simply having more control over personal finances, there are other financial benefits that come out of a divorce, said George Birrell, certified public accountant and founder of TaxHub.
“One of the likely benefits is that you’ll be able to pull your money from your retirement account early, with no penalty fees. In fact, it’s one of the few times that you’re actually able to do this,” he said. “In order for this to be possible, however, a qualified domestic relations order agreement must be reached.
“While it isn’t always a good idea to withdraw from your retirement account, it might just help you to get your life together after the divorce. Just make sure you use the portion that you withdraw wisely.”
Social security perks
Another interesting upside is that divorced people may be eligible for Social Security spousal benefits, meaning more money for their retirement, which can be claimed earlier in some cases, said Allie Fleder, chief operating officer of SimplyWise, a retirement savings fintech in New York City.
“If you’re married, to qualify for Social Security spousal benefits you must have a spouse that is already collecting their Social Security benefits. If you’re divorced, your benefits aren’t connected in the same way, so you can claim spousal benefits even if your ex isn’t collecting Social Security yet,” she said.
Increased financial aid for college Financial aid and college expenses can get complicated during a divorce.
“The goals for each parent for their student should be addressed in a college support agreement,” said certified financial planner and certified divorce financial analyst Olivia Summerhill, founder of Summerhill Wealth Management, which works exclusively with affluent women across the United States. “The custodial parent files for the FAFSA (Free Application for Financial Student Aid). If the custodial parent makes substantially less and is in a lower tax bracket than the non-custodial parent, it makes it more likely for the student to be eligible for financial aid.”
When a student lives with both divorced parents, he or she has the right to choose the parent with a lower income for reporting to the FAFSA.
“This allows him or her to qualify for maximum financial aid,” said Michael Hammelburger, CEO of Cost Reduction Consultants.