Going through a divorce is an emotionally and financially challenging experience. Divorce can have a significant impact on your finances, both during the process and after it is finalized. The financial impact of divorce can be far-reaching, affecting everything from your credit score to your retirement savings. In this blog, we’ll explore some of the ways that divorce can impact your finances.
During the divorce process
There are several financial issues you should consider during the divorce process. These include dividing assets, determining spousal and child support, and apportioning debts. One of the most significant financial issues during a divorce is dividing assets. Depending on your state’s laws, assets may be divided equitably or equally.
Equitable division means that assets will be divided fairly based on factors such as the length of the marriage, the income and earning potential of each spouse, and contributions to the marriage. In contrast, equal division, which applies to community property states, means that assets will be divided equally regardless of these factors. Illinois is not a community property state which means it is an equitable division state.
Spousal and child support
Another financial issue to consider during a divorce is spousal and child support. One spouse may be required to pay spousal support (also known as alimony) to the other spouse. Child support may also be required if there are children involved. These payments can significantly impact your finances which means it is essential to understand the terms of these court orders.
Debts
Apportioning debts is another financial issue to navigate during a divorce. Credit card debt, mortgages, and other debts acquired during the marriage may need to be divided between the spouses. It is crucial to work with your attorney and financial advisor to understand your obligations and rights regarding these debts.
Credit score
After the divorce is finalized, there are still several post-divorce financial issues to consider. One of the most significant issues is the impact on your credit score. If you and your spouse had joint accounts, missed payments, or defaulted loans during the marriage, it can negatively impact your credit score. It is crucial to monitor your credit report regularly and work to rebuild your credit if necessary.
Retirement savings
Your retirement savings may also be affected after your divorce. If you and your spouse had retirement savings, such as a 401(k) or IRA, these assets may need to be divided. It is essential to understand the tax implications of dividing these assets and to work with a financial advisor to ensure that you have a comprehensive retirement plan in light of your post-divorce finances.
Insurance coverage
Divorce can also impact your insurance coverage. If you were on your spouse’s health insurance plan during the marriage, you may need to find new coverage. It is essential to understand your options and ensure that you have adequate insurance coverage after the divorce.
Planning your finances for divorce
By working with professionals and understanding the financial impact of divorce, you can minimize the negative impact on your finances and move forward with confidence. Purposeful Wealth Advisors can provide a leading Illinois divorce financial planner who offers personalized guidance on optimizing your wealth management strategy. Let us help you customize your financial plan to best address the unique challenges of divorcing. Contact us today.
Opinions expressed are those of the author and are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
