Once the initial emotional trauma is past and the couple starts working towards creating separation agreements, it's time to consider the day-to-day costs of living that change as the result of a divorce. The family economic unit that formerly had one mortgage or rent payment, one cable bill, one energy bill, etc., now has two of each of these bills. Wise planning for life after divorce includes living expenses, taxes and retirement planning.
Money's recent article, "Keep a Divorce From Killing Your Finances," offers several important tips for those going through or recently completing the divorce process.
Monitor assets in your divorce settlement: If you're in the midst of a divorce, examine the type of assets that you receive as part of your divorce property settlement. The reason for this is your cash flow. Even in cases where the math demonstrates an equal split between the two parties, one spouse could get stuck with a non-liquid asset, which might end up being difficult to liquidate if cash flow becomes a problem.
Factor in an asset's taxable status: For many couples, a $100,000 brokerage account—for which you'll only pay tax on capital gains or dividends—might be of greater value than a $100,000 tax-deferred retirement account because you'd have to pay income tax on withdrawals from that type of account.
Keep an eye on taxes and their effects: Taxation influences continuing income. For example, the payment of alimony is tax deductible, but the receipt of alimony is treated as ordinary income. However, child support is not taxable to the recipient, which may change the way you prepare your annual tax return and the amount you owe the IRS. Make sure you keep this in mind the next time you file your taxes.
Make sure all estate planning documents are updated. You may be done with dealing with divorce paperwork, but you are not done yet. Go through all financial and estate planning documents, making sure that your beneficiary designations reflect your new marital status. Depending on the terms of your agreement, you may need to make changes on your pensions, 401(k)s, life insurance policies, trusts, power of attorney, etc. An estate planning attorney at Cottrell & Jacobs will be able to help you navigate this final part of your divorce.
Reference: Money (March 1, 2016) "Keep a Divorce From Killing Your Finances"