Divorces can sometimes be more expensive than the wedding itself. It can leave you with a hole in your heart and your pocket.
It is very important to keep your composure during the entire process and prioritize your financial well-being. Most people are not even aware of the aftermath of a bad divorce. During your divorce, you and your spouse have to make some major decisions about your future financial belongings and securities. Some of these negotiations can be amicable, while some end up being ugly.
Contested vs. Uncontested Divorce
An uncontested divorce is great to resolve all financial issues, but most of us are not that fortunate. In this process, both spouses agree to all the terms, and conditions and come to a peaceful end.
If you are wondering how long does an uncontested divorce take? The short answer would be around 12 hours after everything is filed, but the filing process can take anywhere from hours to days.
A contested divorce is where one party refuses to agree and wants to go through the entire divorce procedure. Most financial issues arise in contested divorces. In this article, we are going to talk about the financial issues one has to deal with during and after the divorce.
1. Property Issues
If you own real estate, then that is going to be the first thing that will come up during the divorce. You will have to divide your property between you and your spouse. This includes your marital house, rental properties, vacation houses, business property, or any other commercial or residential property you may own.
It can be very difficult to divide these properties, especially the things that are at your home because of emotional attachments, but there is more than one way to go about it. If you live in community property states, then the division can be decided by court order or state law as per agreement from both you and your spouse. The laws in these states hold all assets acquired during the marriage as joint assets, and these assets have to be divided equally between the parties.
Another way to divide would be bartering. In this process, you will have to take one item in exchange for another. For instance, you can keep the car and furniture in exchange for the boat. If you have multiple properties, you can keep one property in exchange for another.
2. Debt Settlement Issues
During the divorce, if you acquire a piece of property that still has a mortgage or debt, you will have to pay it. However, if it is a joint debt, the spouse will have to pay his/her part. A divorce will not terminate your obligation to a creditor.
But you have to know exactly how much you owe. Otherwise, you may end up paying more than your half. The safest way to deal with this would be to check your credit report. Your report will have all the information about your expenses, assets, and joint accounts. Check which debts are yours only and which are joint debts.
To stop your debt from increasing, cancel any joint credit cards. The cleanest method to resolve debt issues will be to pay all your debt before the divorce is finalized. That way you can start your new life without worrying about debt. You can even negotiate to pay off more debt in exchange for receiving more assets.
But if you do not have the cash right now, make sure you and your spouse divide the debt equally on all legal grounds. However, if both of you sign an agreement on equal payment but your spouse does not pay up, you will still be legally bound to pay off the debt.
3. Financial Asset Issues
Financial assets are extremely important for non-earning or low-income people to pay for regular expenses. These assets include cash, deposits, stocks, bonds, checking accounts, savings accounts, mutual bonds, or any kind of real estate investment trust.
You can split financial assets between you and your spouse just like properties. But remember, each asset may have a different tax count. For instance, a retirement asset might have a 20 percent tax payment, whereas a money market account may have zero tax requirements.
Always get legal advice before dividing any kind of assets. There are other factors to consider such as what happens if the spouse dies? Can you then claim any of the assets back? A professional will have answers for these complex situations.
4. Tax Issues
Tax issues can get extremely complicated if you don’t pay attention to them. If you do not want to pay thousands of tax dollars, make sure you and your spouse have separate copies of your joint tax returns. If you have returns of the past five years, then it is even better because you may have to calculate the cost basis of assets you own.
To resolve tax issues, hire a certified public accountant. They can guide you through the process, handle things like who will receive tax exemption, and identify which fees are tax-deductible. If you have children, your accountant can also advise you on how to avoid having non-deductible child support.
5. Child Support Issues
Child support is calculated by state law and is non-taxable. In some states, for it to be non-taxable, it has to be decreed during the settlement. Child support can be expensive. The standard of living after paying child support can decrease by 10-30 percent.
There are multiple ways state laws calculate child support. But theoretically, if a man provides less than 80 percent of the total income of the family before the divorce, he will suffer financial loss. In most cases, child support is cut directly from a man’s paycheck.
6. Alimony Issues
Alimony can also burn your paychecks fast. Alimony or spousal support is taxable. If you receive alimony, you will be taxed on what you receive. Alimony is also calculated by state law.
However, there is room for negotiation. It’s highly preferable to go for negotiations, otherwise, you may have to count alimony checks for the rest of your life.
7. Health Insurance Related Problems
There are no specific laws regarding the division of health insurance. If you have joint insurance and want to continue it, you will have to decide who pays how much during the settlement. Healthcare is expensive, so make sure you get what you deserve.
8. Retirement Plan Issues
Most states order the retirement savings to be divided in half between two people. But before retiring, you can still contribute to the fund to make sure whatever you get after the divorce and retirement is sufficient for you.
Final Thoughts
Sometimes you might be better off getting divorced. Nonetheless, the process is still grim. You must have a sound mind and expert supervision every step of the way to help you resolve all these financial issues.
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