A broken marriage is hard enough. But what do you do if your divorce leaves you broke? Truth is, besides the emotional toll, divorce can be extremely financially taxing. And while some of the financial implications are inevitable, most are avoidable.
A number of financial mistakes can leave a hole in your pocket during the divorce process. Here are some of these mistakes:
Failing to revise your budget
While you were married, you probably had someone to share your household bills with. Obviously, this changes when you go your separate ways. As a result, maintaining the same living standard might put a strain on your finances down the road. As soon as the divorce becomes apparent, it is important that you review your income and expenditures with the goal of ensuring that you live within your means.
Fighting to keep the family home
There are all kinds of sensible reasons why you might want to keep the family home after the divorce. You have made memories and are attached to the home. Your friends and neighbors live close by. And searching for a new home is a lot of hassle. However, keeping the family home can turn out to be severely devastating to your finances. Remember, there are property taxes to pay as well as home maintenance costs to consider.
Failing to understand tax implications of alimony and property division
Unless your spousal support agreement indicates otherwise, it is important to understand that alimony is taxable. Meaning, both the paying and receiving spouse must declare any alimony payments for tax deductions. Additionally, it is important that you understand the tax implications of dividing marital assets during the divorce process. For instance, if you and your spouse decide to sell the marital home and divide the proceeds, you will be expected to pay capital gain taxes based on each party’s share.
The emotional and financial tolls that come with the divorce can have a lasting impact on your life. Find out how you can avoid costly financial mistakes during your divorce process.