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Considering Divorce? Don’t Overlook These Five Financial Details

By Jamie Berger, Esq.

From living arrangements to child custody and more, divorce often comes with significant life changes. Rest assured, it’s not uncommon to feel overwhelmed by the emotional and financial costs involved—especially since getting divorced could mean your financial picture is changing, too. 

Let’s explore some of the financial details that might impact you if you’re getting a divorce (and how an experienced divorce attorney can provide valuable support during this transition). 

1. Credit score changes

You and your soon-to-be ex may have shared a lot of things during your marriage—bank accounts included. But establishing financial independence after marriage is more than just opening your own bank account: you may also need to address your credit score. 

If your credit score was closely tied to joint financial activity during your marriage, or you were always an authorized user on credit accounts rather than having independent credit accounts in your own name, you could encounter some challenges in establishing your financial independence. This could affect you in a variety of ways, from renting an apartment and securing advantageous interest rates on credit cards to purchasing a car. 

That doesn’t mean you don’t have options, or that your current credit score is forever (it isn’t!). It just means that the next steps (and the logistics involved) will require some additional work. 

If you’re feeling overwhelmed about your credit score (or lack of credit) and aren’t sure where to start, here are some helpful tips that financial advisors and debt specialists often recommend: 

  • Make sure you have access to independent credit and a credit history (ideally, this is something you establish before divorce)
  • Get a card with a low credit limit and build up your credit score by paying it off each month
  • Work closely with a financial advisor to gain personalized insight into your situation

2. Social Security benefit options        

While married couples must wait until one spouse reaches full retirement age to claim a spousal benefit, older divorcees (and some younger ones!) have more options for receiving Social Security benefits.

Generally speaking, you may be able to start claiming spousal benefits as soon as your ex turns 62 if: 

  • You were married for at least ten years 
  • You haven’t remarried 
  • You remarried, but that remarriage ended in divorce, death, or annulment

This applies regardless of when your ex-spouse chooses to file for Social Security benefits, as long as: 

  • Your ex-spouse is eligible for Social Security benefits
  • Their work benefit is greater than yours
  • You have been divorced for two continuous years prior to election

And because you can access these monthly payments earlier than you might have while married, you may have more options in planning for retirement. This also can translate into more cash flow to invest in other things that matter to you and your family.

An added bonus? Claiming spousal benefits doesn’t affect how much your ex-partner (or their new spouse) receives each month.

3. Tax implications

Divorce can have significant tax implications, but rest assured: they aren’t necessarily negative. They just involve some additional considerations. 

For example, you may find that you’re eligible for certain tax breaks following a divorce. Potential tax deductions you could claim (depending on your specific situation) include:

  • Medical expenses 
  • IRA contributions 
  • Certain fees for divorce tax advice

Note: this should not be taken as tax advice. Taxation issues are complex and vary by state and according to federal government restrictions, so it’s important to work out the details with a well-qualified divorce attorney and a trusted financial/tax advisor before you finalize your divorce agreement. 

4. Retirement fund access

Your retirement accounts and pensions can be affected by a divorce. These impacts may require a detailed conversation between you, your divorce attorney, financial/tax advisors, and your ex-spouse to navigate your divorce settlement. 

For example, divorce is one of the only times you can complete a penalty-free early withdrawal from your retirement accounts—and you may also be able to use retirement funds as a tool to negotiate an equitable distribution of assets that helps you meet your goals. 

The guidelines for accessing these funds depend on the type of account you have, but you’ll likely need a “qualified domestic relation order” or QDRO.

A QDRO decree is designed to legally assign each spouse their portion of any retirement accounts. It allows you and your former spouse to pull money out of a pension, 401K, or 403B and divide it up without having to pay taxes or other penalties.

QDROs don’t apply to IRAs, government and military pensions, or other retirement plans that are not governed by the Employee Retirement Income Security Act (ERISA) (though sometimes even plans that aren’t governed by ERISA do accept/enforce QDROs).

The best way to make sure that your rights are fully protected? Work with an experienced lawyer who understands the nuances of asset distribution in divorce and a financial professional familiar with the nuances of retirement account management and withdrawals in the context of a divorce.

5. College funding factors

Parents going through a divorce often worry about how the experience will impact their children long-term. But when it comes to the ever-increasing costs of higher education, divorce can potentially work in your child’s favor.

To receive federal financial aid, college students have to fill out the Free Application for Federal Student Aid (FAFSA). FAFSA awards depend entirely on parental income, and generally speaking, the more money you make, the less likely your children are to qualify for this financial aid. Of course, there can be special rules and circumstances, so you’ll want to speak with an expert on student loans and college funding. 

However, if parents are divorced and no longer living together, FAFSA only requires financial information from the custodial parent, as opposed to both parents (which the Universal College Application and many schools require). 

And while child support and alimony payments from the non-custodial parent to the custodial parent must be disclosed in the application, students may still receive higher aid packages because the custodial parent may end up in a lower tax bracket after the divorce is final. 

Specific advice on tax advantages in a divorce and financial documentation should always be discussed with a financial advisor, student loan or debt specialist, college advisor, or accountant.  

Are you ready to file for divorce in New Jersey?

Divorce can be complicated—and the complex financial considerations involved don’t necessarily make the process any easier. But with an experienced, passionate divorce lawyer on your side, you will make it through.

The attorneys at Jacobs Berger are skilled and knowledgeable advocates focused on helping their clients meet their goals and protect their rights. With a commitment to de-stressing the divorce process, we work hard to provide the communication and representation you need to move on to your next chapter.

If you’re ready to file for divorce, make an appointment to coordinate your strategy session with our team.

Contact Our Morristown Attorneys Today

At Jacobs Berger, our attorneys are experienced in protecting our clients across Madison, Randolph, Tewksbury, Morristown, and the greater Morris County area in all family law-related issues.

To schedule a strategic planning session with one of our experienced team members regarding your particular case, please contact us online or through our Morristown, NJ office at (973) 354-4506.