How Can Divorce Impact You Financially?
Divorce doesn’t just affect your emotional health but can also affect your financial health and future. Stressing about money or finances can also cause more emotional and mental health issues. To reduce the amount of stress you may be under, you should understand the financial implications of divorce.
Here are 10 (surprising) ways that your divorce can affect your finances.
- Health insurance costs. If you were a beneficiary on your spouse’s plan, you may have to pay for your own health insurance plan. Those who are unemployed, self-employed, and that don’t receive healthcare insurance via their employer will be responsible for obtaining their own coverage, and others may have to consider the wage reduction being covered by their employer. Depending on how long it takes you to find coverage, you may also face having to pay expensive medical bills.
- Childcare expenses. According to LendingTree research, raising a child in the United States costs $20,152 each year, and that number is trending upward each year. While this cost can fluctuate based on the cost of living in your state as well as additional needs your child may have. Divorcing parents will have to consider how child support payments might impact their finances. Even if you are the parent receiving child support, you may still have to pay for expenses not covered by that support.
- Credit scores. While your divorce itself won’t affect your credit score, your credit can be affected by joint accounts and your change in income. Even if your spouse is responsible for a certain debt your divorce decree does not remove your name from joint accounts or affect your liability for payments. If you do not remove your name from shared loans and they forget payments, those missed payments will affect your credit. Also, as we mentioned, the change in your household income can affect your ability to pay certain debts.
- Retirement plans/accounts. In Alabama, retirement assets and benefits can be subject to division if they are marital property. Your 401(k) or other retirement savings can also be used to pay child support or alimony in some cases. Losing a portion of your retirement can impact your future plans concerning when you can leave work.
- Tax consequences. While alimony and child support payments are tax-neutral, other divorce-related decisions (like child custody, property division, etc.) can have tax consequences. For instance, withdrawals from retirement accounts, the sale of assets or property, and the transfer of assets because of property division determinations can lead to capital gains taxes or other tax penalties.
- Attorney and court fees. You should account for filing fees from the court as well as your attorney’s retainer. During your initial consultation, you should ask how the attorney will bill you (i.e. an hourly rate, standard fee, etc.) as well as what costs you should anticipate having to cover based on your case specifics.
- Household income. Getting divorced means going from a two-income household to a one-income household. If you have to pay child support and/or alimony, your singular income can feel stretched. You should draft a budget to see if you will need to bridge money gaps or change the ways that you manage your money.
- Housing expenses. Many people worry about who will get the house in the divorce. While you may want to maintain ownership of your marital home, you should consider whether you can afford the household expenses alone. A surprising impact of divorce on your finances is that housing expenses are more expensive than expected; these expenses include maintenance costs, lawn care, utility bills, etc. As we mentioned, your income is also changing, which can mean certain bills and expenses become your responsibility.
- Alimony. If you have to pay alimony, this can affect your monthly finances. While the size of these payments can vary based on your circumstances, you should consult with an attorney to determine how much your payments may be as well as what factors affect whether you have to pay spousal support.
- Marital debt. Having to pay off certain marital debts can affect your finances after divorce. Alabama is an equitable distribution state, which means that property and debts will be divided based on what is fair and equitable. During your divorce, marital debt can be divided and given to either spouse based on who accumulated the debt, each party’s income, assets, and earning ability, each party’s tax burden and separate debt, and other case specifics. Debt that can be divided includes but is not limited to credit cards, tax debts, medical debts, real estate loans, and student loans.
Retain Our Legal Services
At Shaw Family Law, our attorney has decades of legal experience and is committed to helping clients attain a divorce without breaking the bank. Once you retain our services, we can work to help you understand your legal rights and options as well as the financial implications of certain decisions. If you want to save money or have a strict budget for your divorce, we can also advise you on ways that you can save money during your divorce.
To learn more about our services or schedule a consultation, call (205) 259-7650 or complete our online contact form today.