Most of the time, people associate divorce with expenses. You are not only dividing assets and income but also covering the cost of the legal procedure itself. And for cases with prolonged custody disputes or cases with complex estate history, divorce costs can be high. However, many people do not realize that divorce can also provide some financial benefits to both partners after their case has been settled.
After the divorce is final, those benefits can help you regain your personal financial security. Your lawyer can help you get a better idea of what your financial situation will be following your divorce and help you protect yourself during proceedings.
Here are some financial benefits you could see as a result of your divorce, especially if you carefully work through each situation with your attorney.
The most obvious benefit from divorce is the fact that each person will gain sole control over their own financial well-being. You will have your own bank accounts, and after everything is divided, you’ll also have control over your own investment accounts and retirement savings.
If money and spending was a major marital conflict, you’ll enjoy having the ability to budget without a need to account for the actions of a spouse who does not handle money the same way you do. For many divorcés, the extra control over the budget allows them to build savings and reduce expenses without facing any opposition.
Access to Retirement Savings
Splitting retirement accounts is one of the complex and challenging parts of creating a divorce settlement. If you have savings, it’s essential that you do not try to divide those savings on your own. If you remove the money from your accounts without legal help, you pay full tax penalties on the accounts, which results in the loss of thousands of dollars.
When you work with your divorce or estate planning attorney, you can divide and even access the money without paying the severe penalties of removing it early. To protect both parties financially, you file a Qualified Domestic Relations Order (QDRO) for an employer-sponsored 401K plan.
If you also have IRA retirement plans, your lawyer can protect those with a transfer incident to divorce. This divides the assets and the tax responsibility between the two parties, with each person and account independent of the other. Going forward, you will not have pay any penalties for how your spouse manages that money because it’s no longer tied to you.
Using these methods to divide assets is important because you may be able to access the money right away. For some people, cashing out on retirement is not wise, but for others, the immediate cash flow is important to help regain financial footing.
Remember, do not try to access these funds before your divorce or without the guidance of a lawyer. You want to keep as much of your money as possible.
If you do not have savings accounts for your children who may need tuition support for college, divorce can actually help them get larger grants from the government to pay for some schooling. When applying for federal financial aid, the applicant must provide the incomes of their parents.
In a two-parent home with parents working, the income is much higher. However, with one main custodial parent, the reported income is lower, and therefore your student will qualify for more financial aid. For some students, this extra funding is essential to make higher education possible.
If you are hoping that your child will have access to this support, speak with a lawyer about how to best draw up living agreements so that your children can get increased financial aid after the divorce is finalized. The custodial parent on the federal financial aid applications is the one who has provided the primary living support for a child during the past 12 months.
Finally, you can also enjoy the financial benefit of having reduced expenses. For some people, the idea of moving from two incomes to one income is daunting, but the other side of the coin is that life after marriage can be significantly less expensive.
For example, medical insurance plans are often based on family or individual. Even if you are just a married couple without children, you would still pay for a family plan. Individual plans can be much less expensive.
You also have the option to downsize your living situation, you can remove one driver from your car insurance plan, and you move from having multiple vehicles to one. These reduced expenses can make it easier to live on your own salary.
Finances during a divorce can be one of the most stressful aspects of the entire situations. However, if you proceed carefully and cautiously, you can enjoy greater financial freedom and plan effectively for future. For more information, contact us at Madison Law Firm PLLC.