10 Common Financial Questions When Going Through a Divorce

Sometimes the hardest questions when going through a divorce are those that you aren’t aware you should be asking. Thus, I wanted to summarize below the most common questions I answer and topics I prioritize with my clients as we work through their divorce.

1. How does the state I live in affect how marital assets are divided?

There are nine states in the U.S. that are referred to as “community property states” where marital assets and debts incurred by either spouse during a marriage are split 50/50. These states are Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico and Wisconsin. All other states are referred to as “non-community property states” where the assets and debts may be split equitably, whatever is deemed as fair by both parties.

2. How do I know if I am getting a fair deal?

This is a question that your attorney may be able to answer but consulting with a financial planner and running various scenarios is important to do before the divorce decree is finalized. Once the divorce decree is finalized, going back is nearly impossible. You should not sign the divorce decree until you fully understand what you are getting and what your spouse will be receiving.

3. What taxes should I consider?

An important thing to know is that not all tax is created equal. Taxation depends on what type of account the monies are in. You should determine if the monies are in a tax-deferred account or taxable account. If the assets are in a taxable account, determine if the assets have been held a year or longer. When splitting up assets it is important to pay attention to what account you may be receiving and what the cost basis is. The answers to all these questions will help determine the appropriate tax rate.

4. Is alimony/spousal benefit taxable?

Maybe. This depends on when your divorce was finalized. If a judge finalized your divorce by December 31, 2018, then your alimony/spousal benefit will be taxable to the recipient and tax deductible to the payor. If the divorce was finalized after that date, then the alimony payments will not be taxable to the recipient and the payor will not be able to deduct the payments.

5. Is child support taxable and how long will it last?

Child support is not taxable, and the duration may vary. Depending on the state you live in and other factors, on average you can expect to pay child support until the child is 18, 19 or 20 years old.

6. What is a QDRO and do I need one?

A qualified domestic relations order (QDRO) is a document used to split assets that are in a qualified retirement plan that meets the requirements of The Employee Retirement Income Security Act of 1974 (ERISA). A QDRO is a document a lawyer typically drafts and is an additional cost. If one spouse has a 401k, 403b or 457, a QDRO is typically needed. To make sure a retirement plan can be split, the spouse should reach out to the plan administer to confirm what paperwork they may need other than the QDRO. If you have an IRA, that can typically be split via paperwork at the custodian or broker where the IRA is held.

7. Should we split our debts in half?

The answer to this question depends on how much debt there is and what form of debt it is. One thing that should be done is to avoid having both spouses attached to the debt. If one spouse decides not to pay this, it could affect the other spouse paying their share. Look to refinance your home loan or auto loan, so only one spouse takes responsibility to pay it off, if you can, and if there is a reasonable balance to do so.

8. Should I keep the primary residence after a divorce?

This may be a top goal for one spouse but if the cash flow is going to be strained it may not be the best decision. If it looks like the house may need to be sold, consider putting the house on the market as soon as possible. There may be some tax benefits if the house has appreciated.

9. What do I need to consider regarding my credit?

Getting a divorce does not necessarily mean that your credit score will be directly affected. Going through a divorce may be a highly emotional event so ensure timely credit card payments, review any joint accounts and determine next steps, and make sure if you move that your address is up to date so that bills are sent to the right address.

10. What else should I consider or review?

One thing that may be missed is updating beneficiaries on any account that has a beneficiary designation. For example, if you go through a divorce and time goes by and your ex-spouse is listed as the beneficiary, then they will be the one getting the funds if you were to pass away. There may be a way to fight it, but something your heirs may not want to be involved with. Read my earlier blog post on estate planning guidance after a divorce.

Hopefully this is helpful. If you have specific questions or want to discuss your situation to see how I can help, please feel free to schedule a quick phone call with me.

Chad E. Foster, CFP®, CDFATM, ChFEBCSM
Financial Advisor

NOTE: This article offers general information about our services and should not be acted upon without obtaining specific advice from a qualified professional. The information provided is not intended to provide any investment, tax or legal advice; in addition, nothing in this article should be considered a solicitation for the purchase or sale of any security.


Share on facebook
Share on linkedin
Share on email
Share on print

Recent Posts:

Tax Help for Growing Families

Having a child is one of life’s special events – but the cost of a growing family can also bring challenges to your life. Here are some ways that you can take advantage of tax breaks that come along with those extra mouths to feed.

Recent Quarterly Newsletters:

Young Investors Edition

Read our Q2 2021 newsletter for young investors and financial topics that pertain to them, such as wedding finances, prenups, having children, student debt, and more.

Retirement & The Golden Years Edition

Read our Q1 2021 newsletter where we focus on retirement and “the golden years.” Specifically, our CEO Rick Manske opens with some Medicare and longevity guidance. We have three articles on Social Security, from how it fits into your retirement plan to how and when to apply. Our director of tax services gives guidance on downsizing. Our chief investment officer discusses retirement income. Our financial planning manager outlines question to ask to determine if you might need a care manager. And lastly, we celebrate internal news from new hires to recent promotions and awards.

Recent Whitepapers:

Get updates from parsec financial

Scroll to Top