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Make Divorce Less Financially Painful

May 09, 2016 4 min read

 

 

Key Takeaways

  • Consider keeping the home, especially if you have children.
  • Talk with a financial expert to gain a clearer picture of your options.
  • If you and your ex-spouse can’t come to an agreement, consider getting a mediator.

 

Divorce can be a stressful event, both emotionally and financially. Along with being a potential cause for marital strife in the first place, financial troubles can follow after a marriage ends.

Recent studies have shown that women in particular can experience financial hardship following a divorce, with around one in five falling into poverty after their marriage is dissolved.

However, there are steps to take in order to lessen the financial blows following a divorce; below are some to keep in mind.

 

1. Rethink keeping the family home

When dividing assets, both parties may initially want to hold onto the house. This is particularly true in families with children, and especially so for the spouse seeking primary custody.

Ensuring that the kids stay in the family home may seem to be the right decision for their emotional health, but in some cases it simply does not make financial sense.

Kerry Hannon, financial contributor at Forbes, explains why: "[T]he best scenario, according to experts I’ve interviewed, is to sell the home and split the proceeds. The retirement savings stockpiled by your spouse may be substantial and likely to grow in the future. But a home is probably going to cost you money to maintain, and its future value is less predictable."

In other words, a house is not a liquid asset, and it won’t help pay the monthly bills. If cash flow is needed, the right choice might be giving up the family home in order to maintain financial stability.

 

2. Seek out benefits

If the marriage lasted for at least 10 years, one ex-spouse may be able to receive Social Security benefits from the other (even if he or she has remarried) if they meet specific qualifications, including the expectation of a lower benefit payout than their ex. If one spouse is eligible for benefits and their ex-spouse’s benefit is higher, the eligible spouse will receive a combination of benefits equaling the higher amount.

A benefit as a divorced spouse is equal to one-half of their ex-spouse’s full retirement amount if benefits are distributed at full retirement age. If the spouse receiving benefits does remarry, they won’t be eligible for their ex-spouse’s benefits as long as the subsequent marriage lasts.

If one ex-spouse has a pension or other retirement plan, any amount earned during the marriage may also be included in a divorce settlement. A Qualified Domestic Relations Order (QDRO) recognizes the right of one spouse to receive a portion of their ex-spouse’s retirement assets. The QDRO process can vary by state of jurisdiction; for an idea of how your state handles this division of assets, click here.

 

3. Get financial guidance

A financial expert can act as a guide to steer a couple through the murky waters of divorce financials. Advisors can help minimize the tax burden, explain whether a settlement offer is fair, help both parties understand the QDRO and assist in valuing investments.

In addition to saving money and supporting a fair distribution of assets, a financial expert can help protect both parties of a divorcing couple from making emotional decisions. Just as some spouses want to fight for their share, others are so emotionally bruised they may walk away from what they’re entitled to. A financial professional can help both spouses avoid these types of potentially regrettable decisions.

 

4. Consider a mediator

A professional mediator is a neutral third party who helps divorcing couples agree to terms. Mediators do not act as judge, or steer the proceedings in any direction.

Mediation can be a great way to divorce without unnecessary acrimony and infighting. If the relationship between exes is such that they can reach a fair, equitable settlement on crucial issues — alimony, property division, child support and custodial rights — a mediator can save a bundle in emotional turmoil and legal fees.

However, mediation is inappropriate in some cases. Should one spouse suspect the other of concealing income or assets, or if either party refuses to compromise, these are situations best suited for a court of law.

 

What you can do next

Meet with a financial professional, who will be able to help you make the most informed decisions regarding your finances following a divorce. Also, discuss whether getting a mediator would make the proceedings easier.

 

If available to you, you should also consult with a tax and legal advisor regarding your particular circumstances.

 

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