Couples often underestimate the impact of divorce on their finances, according to a recent report by CNBC Select. Unless there is a prenup in place, divorce can take its toll, and being prepared for the impact can help. Here are the most common impacts of divorce, as identified by financial experts:
Credit Score Fluctuation
Perhaps you have a joint credit card with your ex, who is supposed to make payments? His or her failure to do so can affect your credit score. Additionally, if your former partner removes you as an authorized user, your credit score may drop.
Action item: Close joint accounts where you can. Consider “freezing” your credit so new credit can’t be approved in your name. Monitor your credit closely so there are no surprises.
Retirement Portfolio Changes
Retirement savings accrued during coverture (the date of marriage to date of separation) are considered a part of the marital assets and will be divided between divorcing parties. Also, if you were married to your ex-spouse longer than 10 years, you can access up to 50% of his/her social security benefit (and vice versa).
Action item: Reassess your retirement plans to make sure you’re still on track after divorce.
Increased Income Taxes
You will pay more taxes when you file as single than as married. Your custody arrangement may also impact your tax return.
Action item: Consult with a tax professional so you fully understand your new filing status.
Housing Tax Issues
If you’re married, your primary residence is exempt from capital gains tax on the first $500,000. However, if you’re single, only the first $250,000 is exempt. You can avoid a potentially hefty tax bill if you sell before you divorce.
Action item: Look for financing options as you search for new housing and remember that you’ll be doing it with half the income, so budget accordingly.
Insurance Coverage May Disappear
You will no longer be eligible to use your spouse’s health insurance once you’re divorced. You may be able to get a policy from your place of employment; otherwise, you will need to invest in your own coverage.
Action item: Know your options. Also, experts recommend purchasing a life insurance policy on the person paying child support or alimony, to protect the payee, should anything happen.
Whether you are seeking alimony or defending an alimony claim, it is important to have an experienced Bucks County divorce attorney working on your behalf. Contact us at 215-340-2207 or email firstname.lastname@example.org.