Getting a divorce can be challenging, but when it comes to how to handle your money, The Balance can guide you through every step of the process. In this content hub, find the answers to all of your financial-related divorce questions.
Your marital status impacts your filing status, tax rate, who can claim a child as a dependent, and more. The main tax-related difference to be aware of when going through a divorce is that you may be eligible for head of household filing status after a divorce is finalized, which will allow you to claim a larger standard deduction. Other things to think about include who will claim a child (if relevant) as a dependent, if you are still jointly liable for taxes, and whether or not you can deduct child support and alimony. Note that, for the IRS to consider you legally divorced, the divorce must be final by the last day of the tax year, Dec. 31.
In most cases, the majority of debts incurred during a marriage will need to be divided in court during divorce proceedings. How debt—think credit card debt, a mortgage, auto loans, student loans, personal loans, and medical debt—is divided will largely depend on the state you live in and whether it’s a community property state or equitable distribution state. Before a divorce is finalized, it’s best to list all your debts (both individual and joint) and the amounts. Then, make a plan for paying off debts that works best for you.
The sole cost of filing for a divorce will depend on the state (and sometimes county) you live in, but it generally falls in the range of $100 to $400. In New York for example, the filing fees will cost at least $335 if your divorce is uncontested. In addition to filing for a divorce, you will need to account for potential legal or attorney costs, expenses you will take on as an independent, and child support, if applicable.
Your credit score is not directly impacted by getting a divorce, rather from situations arising out of the divorce process. Account closures, missed payments, or higher debt balances due to divorce costs have the potential to lower your credit score. To protect your credit during a divorce, check your credit report from one of the three major reporting agencies, close joint accounts, review your monthly expenses, and maintain all payments.
The division of assets in divorce depends on a number of factors, including your state’s laws, the type of asset at hand, and whether the asset was acquired before or during the marriage. If you live in a community property state, property and debt acquired during marriage are usually subject to a 50/50 split. With common-law property, though, each spouse is entitled to sole ownership of certain items acquired during marriage.
Only one person can claim the same dependent on their tax return, and this person is considered the custodial parent. The custodial parent can claim tax breaks such as child tax credit, head of household filing status, earned income tax credit, and exclusion for dependent care benefits. However, both parents may still be able to take advantage of some dependent-related tax breaks if they decide to split the tax breaks.
When a marriage ends, alimony is financial support paid from one spouse to another. In most cases, the court-appointed funds provide for the receiving spouse’s “reasonable and necessary” financial support. Alimony can be permanent, lasting until the death of either spouse, or it can be ordered for just a limited period of time due to certain circumstances.
Marital property is any property and assets acquired by at least one spouse during the course of a marriage. Generally, exceptions apply for gifts and inheritances. In a divorce proceeding, the court looks at both marital property and separate property to decide who gets to keep what once the marriage is dissolved. How marital property is defined in a divorce often differs by state.
A certified divorce financial analyst (CDFA) is a trained financial professional who can help you navigate the division of assets in a divorce, as well as other financial matters. They often work with your divorce lawyer and usually have work experience in financial planning, accounting, or divorce law.
A dependent is a person for whom you provide financial support during the tax year. The IRS generally considers qualifying children and qualifying relatives as dependents, but the individual must pass a series of tests to be claimed on your tax return. If the person qualifies, adding a dependent to your tax return can qualify you for several tax credits and tax deductions, saving you money.
Child support is a series of payments made by one parent or legal guardian to the other, in order to help cover the costs of raising a child. It is most common in cases of divorce or separation. Generally, to receive child support, you need to apply for it through state courts.
In the event of divorce, a qualified domestic relations order (QDRO) assigns interest in a retirement plan to a former spouse or other dependent, allowing more than one person to receive benefits from a retirement plan. It must be court ordered. The details of a QDRO will depend on the type of retirement plan, the type of benefits afforded under the plan, and the reasons for the division.
Legal separation does not end a marriage legally, but gives spouses the ability to live separately while still maintaining some marriage benefits, such as health insurance. It occurs when a married couple stops living together and follows certain rules as set out by the spouses in a voluntary, written agreement that is usually filed in court.
Common law property refers to how ownership of property acquired during a marriage is determined. It asserts that each spouse is an individual entitled to sole ownership of certain items, and often comes into play in divorce cases. Common-law property is often contrasted with community property, which follows different ownership rules.
Community property is a type of joint ownership of assets between a married couple. While it depends on the state you live in, it generally means all assets purchased or acquired by a couple during their marriage are owned equally by them.
Mediation in divorce is the process of meeting with a third-party professional so you and your spouse can resolve issues and reach a mutual agreement concerning the division of assets, minor children, spousal support, and more. It’s an alternative method to a divorce that is settled in court, and is often the more affordable option.
A contested divorce is one in which two spouses can't agree on one or more critical factors in their divorce, so a court must get involved to help resolve the issues. These factors can include division of property, child support, and alimony. Contested divorces can be lengthy and expensive.
An uncontested divorce is one in which spouses have reached an agreement that they want to end their marriage and have determined logistics among themselves. In this situation, they’ve resolved all outstanding issues between them involving children if they have any, marital property, and marital debts.
A financial affidavit is a sworn and notarized statement of your assets, income, expenses and debts that you must share with your spouse and the court in order to finalize a divorce.
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