Undeniably, divorce will have a significant effect on your life and especially your finances. There are around 800,000 divorces in the United States each year, according to the National Center for Health Statistics. Here's how to enter into the situation financially informed.
Know The Costs Sooner Rather Than Later
It’s never too early to gather information on how much money you’ll need to cover legal and other fees related to divorce. Plan ahead to be in a better financial situation once the divorce is finalized. Start by gathering as much documentation as possible—include tax returns, bank, investment and retirement account statements, and loan and credit card information—so that you have the details you need to sort out your finances and negotiate any financial concerns.
Understand Tax Changes That Can Make an Impact
Couples who are separating or divorcing in 2019 should be aware of a major change in the tax treatment of alimony. Under the old federal tax law, the person paying alimony was able to deduct those payments from his or her income and the person receiving alimony was required to include those payments in his or her income. Under recent tax reform, for divorce or separation agreements beginning in 2019, the person paying alimony will no longer be able to deduct it, and the recipient will no longer have to include the alimony in his or her taxable income.
Change Your Monthly Budget
After a divorce you’ll be relying solely on your own earnings, and likely opening new checking and savings accounts. You'll want to take into account the cost of moving into and furnishing a new home, if appropriate. You'll want to create a new monthly budget based on your income and expenses as a single person. Continue payments to your savings and retirement accounts to ensure that you have a financial cushion now and a nest egg when you retire.
Envision Your New Future and Plan For It
Divorce can also involve getting or changing jobs, downsizing your residence, relocating, or revising retirement or other major plans. Step back and reconsider what larger changes may make sense to you in the next chapter of your life. Do you still need the same big house? Do you still have the health care coverage you need? Are you on track for retirement? These are the issues you should plan for a financially sound future.
Louri Rivero Borr is a CPA licensed in both NJ and NY, with over 25 years of experience. The firm can provide you with unparalleled accounting services, provide tax services and advice, and perform audits, reviews or compilations.
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