Divorce inspires a myriad of financial considerations that can significantly impact an individual’s economic stability. Because each divorce is unique, it’s critical that anyone who is going through this situation considers their own circumstances carefully, as failure to do so can be consequential.
Understanding and effectively managing the financial considerations of divorce can lead to a more stable financial foundation once a divorce is final. It’s critical to think logically about these concerns because emotional thinking can lead to less-than-ideal decisions.
Living on one income
Transitioning to a single income is a significant adjustment after a divorce. Expenses previously shared, such as housing, utilities and daily living costs, now fall on one person. This often necessitates reevaluating and adjusting spending habits to fit the new financial reality. It may involve downsizing or reducing expenses to maintain a stable economic life.
Dividing retirement accounts
The division of retirement accounts is another crucial financial aspect of many divorce cases. Dividing them requires careful consideration of various factors, including the type of accounts, how long the marriage lasted and individual contributions to these accounts.
If both parties were employed and contributing to their own retirement accounts, each person may walk away with their own account without a need for more complex approaches to division. If a division is necessary, a qualified domestic relations order may be necessary for qualified accounts like pensions or 401(k) accounts. Non-qualified accounts, including IRAs, use a transfer incident to divorce for the purposes of division.
Ultimately, each party needs to ensure they’re in the best place possible when it comes to finances. Taking the time to review one’s property division options and thinking about the impact of each may be beneficial for individuals going through this situation, as a strategic approach can mean the difference between future financial stability and instability.