What happens to your finances after you get divorced?

Divorce in itself can be an expensive process, and its implications on net worths and individuals’ finances can be very complicated. While you should consult a lawyer on the different aspects of joint-ownership of assets and debts, it is good practice to have cordial conversations and understand the negotiation process yourself in order to reduce legal expenses. Subcategories of your personal finances can be affected differently depending on your approach towards settlements and your specific situation. 

Physical assets 

Usually, jointly-owned assets like property are split between the husband and wife. You have the opportunity to discuss and come to an agreement with your partner about the details of the ownership split. While most property agreements are polite and amicable, disputes usually arise during the discussion of splitting other assets like cars and furniture. You should feel free to utilize a mediator or arbitrator to settle those disputes. 

Liabilities and debt

As with the physical assets, you will be expected to split debt that is under both your partner and your name. Joint credit card accounts and loans will have to be paid back or transferred to one individual. The best-case scenario would be to pay off all debt and start fresh, however, that might not be possible for most people. In regards to other kinds of debt, it would be in both individuals’ best interest to pay off the debt equally. Otherwise, a more nuanced agreement can be made that gives one individual responsibility for more debt along with ownership of more assets. 

Retirement accounts

It is possible that your retirement savings have to be split among your partner and you. In the case that a split occurs, you should be wary of the 10% early withdrawal fee on most retirement accounts. 

Tax implications

A lot of divorce-related expenses such as legal fees, child support and alimony can qualify as tax-deductible, so you should consult a CPA for tax advice during the process. In addition, you should ensure that you abide by any changes that affect your income tax bracket like changing dependents or ‘head of household’ status. 

Conclusion

Overall, a divorce can be a messy process in every aspect. In order to remain safe from a financial perspective, you must learn about how the process will affect your specific situation. Having a strong legal team that advises on the process is critical to ensure that both parties come to agreements amicably.