Divorce and Finances: How Divorce Can Affect Your Money
The divorce process can trudge up a myriad of emotions and bring a lot of unresolved conflict to the surface, especially when you are getting down to the wire. The closer you get to the finish line, the more stressful the situation tends to be, as it is a taxing experience for everyone involved. Despite these common bumps in the road, many divorces run smoothly and end on a mutual, peaceful note. The entire process can prove to be a positive path for the whole family, as it often removes everyone from an unhealthy environment.
Even when you are fortunate enough to skim through a divorce without much tension, one area that can be significantly affected in the aftermath is your finances. This doesn’t mean your financial well-being needs to suffer, however. Here are three ways your divorce can affect your money and how to combat those changes so they don’t take a turn for the worst:
1. Tax Changes
When you divorce, the change must be reflected in your filing status. For example, if you are still married on December 31st, the IRS considers your status “married” even if you have been separated and the divorce is in progress. You can avoid needless trouble with the IRS by simply ensuring you choose the correct status. In short, couples cannot file a joint return for the year that their divorce decree became official.
If you have children, another area you will need to address is the Dependent Exemption. The spouse who is eligible to claim their child on the return is entitled to certain tax credit benefits, but you must meet specific requirements to claim this advantage. If your child resided with you longer than they resided with your ex-spouse during the tax year you are filing for, you might be eligible to claim the exemption. These details can be tricky, so it is important to work with a qualified accountant and attorney to properly address any questions and concerns when you file.
2. Credit Hits Due to Joint Investments
If you’re not careful, your credit can also be at risk once the divorce is over. Any debt you shared with your spouse will not cease to exist just because you split up. Moreover, lenders will not simply assume your ex-spouse assumes all responsibility for those debts. You will need to make official arrangements regarding your joint investments by communicating with each lender and your ex-spouse, and even then, there is no guarantee a lender will honor your settlement agreement, as both your names were placed on the account at the time the investment commenced. For example, banks typically require shared mortgages to be refinanced if one spouse wants to take responsibility for the property. Whatever your circumstances, shared debts can come back to hurt your credit if your spouse missed a payment and your name is still on the account.
3. Paying or Receiving Alimony
Whether you are required to pay alimony or will be receiving alimony following your divorce, those dollars are bound to affect your wallet. Not having enough money once you have split from your spouse can impact your entire lifestyle, your existing comforts, and your routines, which in turn can affect your psychological - and even physical - health. It is important to know where you stand when it comes to alimony. It is not guaranteed you will receive it, and if you do, the awarded amount can vary depending on your circumstances. To prevent needless financial distress, be proactive by speaking with a knowledgeable Kane County divorce attorney, who can assist you in this area. Call Shaw Family Law, P.C. today at 630-584-5550 for a free consultation.