The divorce process undoubtedly involves a lot of loose ends, both emotionally and financially. Anyone going through a divorce needs to consider how assets and liabilities will be divided before and after this difficult period.
Financial Considerations For A Divorce
It’s no secret the divorce process can feel overwhelming at times. Try to focus on the following financial considerations to keep this process on track as you transition into a new phase of life. Of course, laws regarding finances in a divorce will vary state-to-state.
1. Dividing Your Home
If one spouse wishes to stay in the current home that you once shared, you may need to refinance in your name alone. You may also need to allow your spouse to keep a bigger share of another asset in order to create an equitable distribution.
It’s possible your current home may need some significant investments in the near future. Figure out how previously planned repairs or improvements will be paid for. Always maintain a record of items paid for by jointly owned assets.
2. Retirement Plans
Retirement savings will usually be split equally, although this is not always the case. Money saved prior to marriage could be considered separate property. Equal distributions are typically important for couples divorcing at age 50 and older. At this point in life, retirement savings may represent a significant portion of a couple’s total wealth.
A Qualified Domestic Relations Order pushes the transfer of a portion of the assets in an IRA or workplace plan to the ex-spouse’s retirement account. This transfer can be made directly, avoiding a 20% withholding tax. The ex-spouse receiving the transfer will be given a one-time opportunity to withdraw any portion of this money without being assessed a 10% early withdrawal penalty.
3. One Spouse Is The Primary Income Earner
Spousal maintenance payments can be arranged when one spouse is making substantially less money than the other spouse or is non-earning altogether.
If there happen to be minor children in the middle of the divorce, the other spouse must contribute regular child support payments. If one spouse provides health insurance for the children, premiums and deductibles for any doctor visits will likely need to be contributed, as well.
4. Taxes
Divorce undoubtedly impacts taxes in several different ways. For example, you will no longer file taxes as “married” in the year when the divorce is finalized, as recognized by state law. You will need to determine whether to file as a single person or as “head of household”, if qualified.
You must also figure out how to handle mortgage and tax deductions during the year of the divorce. If assets are liquidated as part of the divorce, any profits could be subject to capital gains tax. Maintenance payments and child support payments must be accounted for at this time, as well.
5. Social Security Benefits
Once the set retirement age is reached, you will be able to claim Social Security benefits based on the earnings of your ex-spouse. Of course, to do so you must’ve been married for at least 10 years. Additionally, you will need to be divorced for at least two years and remain unmarried.
When calculating benefits, the spousal benefit will be equivalent to one-half of the benefit of the ex-spouse as long as you have both reached full retirement age. Your benefits will be reduced if you begin receiving benefits before reaching the full retirement age. Always review all your options in an effort to maximize the benefits you’ll receive.
Conclusion
Dividing both money and assets during and after a divorce can be quite challenging. Consider following this quick list to ultimately make the financial portion of the divorce as smooth as possible:
- Gather all your key financial documents ahead of time.
- Account for all jointly owned and individually owned assets.
- Open a new account(s) that were previously retained in an ex-spouse’s name.
- Update all bills.
- Update beneficiary designations.
- Update wills, if necessary.
- Consider the services of a divorce mediator.
Source:
- 5 Financial Considerations In A Divorce Retrieved August 20, 2025. from https://www.usbank.com/wealth-management/financial-perspectives/financial-planning/financial-planning-for-divorce-dividing-money-after-split.html
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