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7 Financial Factors to Consider When Planning a Divorce

Are you worried about the health of your finances during or after divorce? Are you hoping to time the filing of your divorce petition to maximize financial gain? Things might feel a bit overwhelming right now, but knowledge is power. Here are seven financial factors to keep in mind as you plan your divorce.

1. Your state property laws

If you’re getting divorced, it’s crucial to know whether you live in a community property state or an equitable division state. This information impacts how your marital property must legally be divided.

“Marital property” refers to the assets and financial resources acquired during a marriage. If you live in a community property state, all marital property is typically divided equally between divorcing spouses. If you live in an equitable distribution state, the division of property isn’t always 50/50. 

In addition to knowing which type of property state you live in, it’s important to understand what constitutes marital property versus separate property, as this too can have implications for how your assets are divided in divorce proceedings.

2. Your healthcare coverage

With the severing of marital ties, it’s important to realize that healthcare coverage may end for one spouse. For example, one spouse may be covered by the other’s employer-sponsored healthcare coverage. That coverage ends when the marriage ends.

Losing health insurance could translate to exorbitantly high out-of-pocket medical costs. The un-covered spouse would need to look for another source of healthcare coverage by purchasing a plan through HealthCare.gov, buying a COBRA plan, or getting a full-time job with benefits.

Read about your healthcare coverage options if you lose your health insurance in divorce.

3. Your retirement benefits

Will the retirement benefits you and your soon-to-be-ex have accrued be split between the two of you? Generally speaking, government-based retirement benefits like Social Security are only divided at the 10-year mark if one party has been working for at least that long and contributing to a qualified plan.

Long-term married couples who contributed significantly to their retirement plan could each stand to lose a substantial portion of their savings in divorce. In turn, they could find themselves in a much more financially precarious position than before divorce. If you’re worried about this, consider speaking with a financial planner to strategize for your retirement.

4. The real estate market

Real estate values fluctuate over time, and the state of the market could impact your decision about when to file for divorce or to sell your marital home. For example, if the economy is doing well, housing prices are likely to go up, making it a good time to sell property or other assets that could be affected by a major real estate transaction.

Look closely at real estate supply and demand. If there are more sellers than buyers in the market, housing prices may decrease. Thus, it may be better to wait and see if the market improves before selling.

5. Each spouse’s income

When planning a divorce, it’s important to consider each spouse's source of income. If one spouse does not have a reliable source of income, they may be entitled to spousal support or alimony. For example, a spouse who gave up a career to raise children or support the marriage in other ways may be entitled to spousal support. Sometimes, a divorcing spouse will need temporary spousal support to carry them through as they look for a way to get back into the workforce.

6. Your credit score

One of the most important things to keep in mind when preparing for a divorce is that your credit score can impact your ability to rebuild your life. For example, having good credit can help you secure loans or financing after a divorce that would allow you to purchase a new car or home. Some effective strategies for improving your credit score include paying off existing debts, limiting your spending, and monitoring your credit report regularly.

To improve your credit now, it’s crucial to stay disciplined with your spending and make timely payments on your debts. Create a monthly budget – or revisit the one you currently have – to see where you could cut corners.

7. Child support

If you have minor children, the earlier in their lives you file for divorce, the more child support someone might have to pay. Not only this, but the payments for very young children could be larger – especially if the other parent gave up a career or stopped working to raise the children.

Further, if you're the recipient of support, note that your own marital status may impact your ability to receive support. If you remarry, for example, your new marital status would likely eliminate any alimony payments, and it may also reduce or eliminate child support payments, depending on the circumstances of your new marriage.

Your safety comes first

While you may want to wait to file for divorce until certain financial opportunities arise – a better housing market or a more opportune time in your career, for example – the presence of domestic abuse or other danger must take precedence. Your safety is of utmost importance. 

If you’re in a dangerous situation, the well-being of yourself and your children comes first. You can call the National Domestic Violence Hotline at 1-800-799-7233. You should never put yourself or others at risk by waiting too long to end an abusive or dangerous relationship.

If you’d like to learn about the financial planning services offered by Hello Divorce, it’s easy to do so. Click here to view our calendar and set up a free 15-minute phone call with an account coordinator. Or, click here to learn about working with a certified divorce financial analyst (CDFA) and here to learn about our flat-rate CDFA services.