Seeking a fresh financial start
“It might be the only thing the two sides in a divorce can easily agree on: It’s no fun,” said Sarah O’Brien in CNBC.com. In the midst of hurt feelings, difficult conversations, and tough questions about the future, you’re expected to make some of the most important decisions of your financial life. Without a trusted, independent adviser to help you wade through the financial implications of the split, you may exit the marriage “in far worse shape than you intended.” Two of the biggest mistakes people pursuing a divorce make are “keeping a home they can no longer afford” and accepting the house in a settlement in lieu of liquid assets. Consider carefully whether you can afford the upkeep on your home in light of your new, postdivorce budget. And even if the home’s value looks the same on paper as, say, a retirement or savings account, “think twice before agreeing” to take it. The house will be far more costly to maintain over time, with different tax implications.
The financial stakes are especially high for older couples, said Scott Hanson in Kiplinger.com. Divorce rates among Americans age 50 and older have nearly doubled since the 1990s, even as rates for all other age brackets have declined. It can be difficult for older Americans to recover from a split, because their earning potential has usually already peaked and their assets may be fixed. Lawyers’ fees can be substantial; “typically the longer you’ve been together, the more assets you’ve acquired and the more expensive the process.” The tax penalty for liquidating retirement and investment accounts to split the money can also be extremely high. “I’ve seen jaws literally drop open in disbelief over the actual post-tax value of once-bragged-about brokerage accounts.” How to sort out Social Security benefits is another key concern, said Beth Lynch in CNBC.com. If you were married for 10 years or more, you can claim spousal benefits on your divorced spouse. “But if you remarry, you lose the opportunity.” There can be a financial upside to an otherwise sad situation, said Maryalene LaPonsie in USNews.com. If you and your partner fought regularly over finances, the end of the marriage could provide you with greater autonomy over your own budgeting and spending. You might also land more financial aid for your children when they go to college; the Free Application for Federal Student Aid “requires financial information only from the custodial parent rather than both parents.” Despite the emotional toll, remember that a divorce can be an opportunity. “Finance experts say the opportunity to rethink priorities and start fresh can be a positive.”