Divorce can have a significant financial impact on everyone involved. There are a number of different reasons why divorce can be financially challenging, including the cost of the divorce itself, the loss of financial resources for a spouse, and the additional costs needed to support two households instead of one.
But, in certain situations, getting a divorce can offer some financial benefits.
Can a divorce save you money? While there are obviously going to be some upfront costs and the potential for a period of financial strain, a divorce can absolutely put some people in a more secure, sustainable long-term financial position. Read on for a comprehensive overview of some of the most common reasons why filing for divorce could actually bring financial benefits.
The Ability to Separate Yourself From a Financially Irresponsible Spouse
Did you know that financial disputes are one of the leading causes of divorce in the United States? According to data cited by MarketWatch, nearly 40% of divorcing couples cited finances as a core area of conflict. In many cases, the primary issue is that one spouse believes that their partner is financially irresponsible. It could be gambling, credit card debt, or other extravagant spending. Regardless, getting a divorce could be a major financial benefit if you are separating from a financially irresponsible person who is damaging your collective finances.
A divorce can help you protect your credit score and minimize the risk of being held liable for your ex-spouse’s debts or other financial missteps. By removing yourself from a financially toxic situation, you can improve your financial stability, reduce stress, and make better decisions about your personal finances in the long run. In some cases, a divorce could also provide a clean slate for rebuilding your financial life, free from the negative impact of a partner’s poor spending habits or overall financial mismanagement.
Easier Budgeting and Greater Control Over Your Own Money
Budgeting is one of the keys to financial stability. After a divorce, you will have greater control over your own money and financial decisions. Easier budgeting is possible when you do not have to compromise with another person’s spending habits or priorities. You can create a budget that aligns with your personal financial goals and values. In doing so, it can be easier to save and invest according to your needs and goals. Your newfound financial independence will empower you to make better financial choices and ultimately work towards a more secure financial future.
An Opportunity to Reset Your Financial Priorities
Are you in a difficult or uncertain financial position? If so, it is entirely normal to feel stressed out and overwhelmed. Financial problems are hard. They can carry immense pressure and cause deep anxiety. A divorce offers an opportunity to reset your financial priorities and focus on your own financial well-being. As you transition from a joint financial situation to an individual one, you’ll have the chance to reevaluate your financial goals and priorities. Along with otter things, you will have an opportunity to:
- Create a new personal budget
- Re-evaluate your savings and investment strategy
- Establish long-term financial goals
Possibility of Reduced Federal Income Tax Obligations
Marriage can offer tax advantages to some couples—but that is absolutely not always the case. There are some people that effectively pay a “marriage penalty.” Divorce can result in reduced federal income tax obligations as your tax filing status changes from married to single. This shift can potentially lower your overall tax burden, depending on factors such as income levels, deductions, and credits.
Beyond that, divorce can also enable some people to claim certain tax benefits independently, such as the Child Tax Credit (CTC) or the Earned Income Tax Credit (EITC), which may result in a more favorable tax situation. Of course, all tax matters are complicated. Be sure to consult with an experienced tax professional who can assess your specific situation.
Potential to Early Access to Retirement Assets (Gray Divorce)
In the case of a “gray divorce” (divorce among couples aged 50 or older), you may gain early access to retirement assets without incurring the usual penalties. It occurs with the division of retirement accounts, such as 401(k) plans or IRAs. As a general rule, withdrawing from these accounts before reaching the age of 59½ would result in a 10% early withdrawal penalty.
However, under certain circumstances, the IRS permits penalty-free withdrawals when they are made as part of a divorce settlement. Early access to retirement funds can offer much-needed financial relief or help you address other financial priorities post-divorce.
In some cases, a person getting divorced may actually also be able to access Social Security retirement benefits before they would have otherwise been able to. If you have any specific questions about retirement benefits and divorce, you should always consult with a financially-savvy divorce lawyer who can protect your rights and your interests.
Accessing the Financial Benefits of Divorce Requires Proper Planning: Get Professional Help
Divorce is typically associated with financial challenges, but it does have its financial benefits. To fully access the potential financial benefits of divorce, it is crucial to have a well-thought-out strategy. Professional guidance and support can make a difference. A skilled divorce lawyer is essential in navigating the complexities of the legal system and ensuring that your financial interests are protected throughout the divorce process. Your attorney will not only help you understand your rights and options but also advocate for the best possible outcome for your financial future.
Other financial professionals may be able to offer assistance as well. In addition to hiring the right divorce lawyer, you may want to consider speaking to an accountant, financial planner, and/or tax expert. These professionals can provide valuable guidance on topics like tax implications, division of assets, and long-term financial planning. By assembling a team of experienced professionals, you can make informed decisions during the divorce process and, ultimately, maximize the potential financial benefits of your divorce.