Financial Impacts of Divorce

Going through a divorce is never an easy process; and, the longer you have been married, the harder it is to make that break. The breakup of a relationship and possibly a family can wreak havoc on your emotional well-being, but divorce also has considerable financial impacts for both parties. Whether your employees or your clients are considering divorce, or actively going through the process, they need to understand the financial impacts of divorce. Some divorcees find themselves dealing making financial decisions when their ex-spouse handled household finances. Others struggle financially because of spousal and child support payments. In any case, a divorce is a major life event that gives you the opportunity to help your employees and clients rebuild their lives and find solid financial footing after their split. Here are some areas of consideration surrounding the financial impacts of divorce.

Real Estate

Unless you have a prenuptial or postnuptial agreement in place, once you decide to get a divorce, you will have to agree on what to do with your shared real estate. This not only includes your primary residence, but lake homes and other vacation houses, timeshares, rental properties, commercial real estate, and business properties. It may
seem like these things should be an easy split, but this isn’t always the case, especially when one or both parties have strong emotional attachments to one or more of the properties. If you choose to sell and have equity in your house, it might be in your best interest to sell prior to divorce. Jointly, you can take a larger portion of tax-free gains than that of a single person. Regardless of if or when you sell, you will have to decide how to handle any equity in your home.

Financial Assets

With marriage comes many joint, and some individual financial assets. One of the
The biggest tasks of going through a divorce is evaluating those assets and deciding on how they should be split. It’s always in your best interest to work it out with your spouse to avoid extra high legal fees or a judge’s ruling. Financial assets you need to assess include, but are not limited to:

  • Cars, boats, ATVs, and any other non-real estate physical assets
  • Bank accounts
  • Cash value life insurance policies
  • Retirement accounts including pensions and IRAs
  • Stocks, options, bonds, mutual funds
  • Antiques, artwork, and jewelry
  • College funds and/or educational savings accounts
  • Yes, even Frequent flyer miles


Unfortunately, it’s not only assets that get divided in a divorce. Debt accumulated as a married couple must also be accounted for. In situations where one person is the primary breadwinner, it’s likely he or she will have to shoulder the lion’s share of the debt. This makes the first few years after divorce financially difficult for some. In fact, it can be difficult, if not impossible, for some to recover to the same pre-divorce level and lifestyle unless they plan carefully. The biggest debts for most include the following:

Mortgage. If one party is keeping the house, he or she may need to refinance. In this situation, some couples choose to take the equity out of their home and pay debt, or the person keeping the home uses the equity to buy out their spouse. In some cases, couples might have little or no equity in their home, so they must make agreements about other assets to make an equitable split without selling the home.

Credit cards. You need to cancel all joint credit card accounts by the time you
file for divorce and decide who will be responsible for outstanding debt.

Car loans. It’s typical that the person who keeps a vehicle also takes the
payment, but each situation is different. If your spouse is taking a vehicle and
you won’t be making the payments, you need to have him or she refinance the
car without your name on the loan.


In general, the United States tax code favors married households. When you get a divorce, you put yourself back to single, head-of-household status. Several potential tax considerations might impact you depending on your income level, whether you have young children, and whether you retain any real estate. In addition to the previously mentioned real estate tax considerations, some other ways taxes can financially impact you during and after divorce aside from include:

Retirement assets. If you try to cash out any retirement plans early because of financial struggles, you will be taxed heavily; however, you can transfer retirement assets during a divorce without penalty, as long as it’s done in compliance with a Qualified Domestic Relations Order (QRDO).

Spousal support. In divorces prior to 2019, alimony or palimony payments were tax-deductible and the recipient needed to report payments as income. As of 2019, spousal support payments are tax neutral; the payer cannot deduct them, and the payee does not need to report them.

Marital status for filing. If you are still married on December 31st, you must file jointly for that year. Consult with your accountant to weigh the advantages and disadvantages of postponing your divorce.

Child deduction. It’s common for the custodial parent to take the dependent exemption when filing taxes. When couples have a shared custody agreement, they might alternate years or split deductions when there are multiple children.

Child Support/Spousal Support

Child support and spousal support remain the central issues and often most contested issues during a divorce. In most states, the court determines child support by assessing the income of each parent, the custody arrangement, and the number of children. It typically lasts until the child is 18 or graduates from high school, whichever is later. You will have little if any control over the amount of child support you receive or have to pay.

Spousal support is a different story; its purpose is to help the spouse with the lesser income adjust to the loss of income after divorce. While it’s not always the case, if a court awards spousal support, it’s often for half the number of years you were married. It can be less, it can be negotiated into one lump sum payment, or the recipient might altogether choose to decline the support.