Q. I’ve been separated from my spouse for five years. We keep completely separate households and we each pay for our own bills. What should we consider financially before we decide if we stay married or officially divorce?
A. You seem to be better off than many who are facing divorce, at least based on the statistics.
About 20 percent of women fall into the poverty level as a result of divorce, and men also see a decrease of their standard of living by as much as 30 to 40 percent, said Jody D’Agostini, a certified financial planner with AXA Advisors/The Falcon Financial Group in Morristown.
“Generally, women suffer more financially then men, as they are often the primary custodial parent, and were not the primary breadwinners,” D’Agostini said. “Many either have chosen jobs that give them flexibility or have exited the job market for a time to raise their children.”
It sounds that you are financially separate from your husband, so you’re ahead of many others who are considering divorce and the big life changes it brings.
But for others, it’s important to evaluate what you will need to earn to support the post-divorce household.
D’Agostini recommends people remember to include expenses that they might not currently have such as child care, babysitting and chores that the other spouse did.
Health insurance can be a big-ticket item, too.
“One of the biggest financial hurdles will be the loss of health care coverage by one spouse, as they get dropped from the coverage the day of the divorce,” D’Agostini said. “They are allowed COBRA coverage for 36 months, but they will pay the premium, and they are now not subsidized by the company and can be quite expensive.”
Also think about other costly items, such as any training or education you may need if you’re looking for a job, or the costs to furnish a new home.
So when you’re considering a divorce, one of the most productive exercises you can do is to prepare your projected expenses, D’Agostini said.
“Clearly, two individuals contributing to one household make it more affordable,” she said. “Also, generally speaking, filing your taxes jointly saves on your tax liability.”
You may find it difficult to maintain your current lifestyle post-divorce, so prioritizing your discretionary expenses is important, as well as choosing a future living situation that you can afford, she said.
“If you are selling the marital home, you should look to see if you have any capital gains,” she said. ” When you’re married, you get $500,000 of capital gains increase, and only $250,000 for an individual.”
Also, if you need to use assets in a brokerage account to supplement cash flow, there may be tax implications for doing so, she said.
It is wise to take stock of all your assets and liabilities.
“You should assess your savings, so that you have resources going forward to pay for any emergencies that arise,” D’Agostini said. “Debt is shared 50/50, and with divorce is either paid off, or a payment plan is created. This must be considered in your cash flow.”
Don’t forget to change the beneficiary of your life insurance and retirement accounts, unless you want your soon-to-be-ex to inherit them when you die.
If you have children, you need to determine who will count them as exemptions, or if you share or alternate the children for your tax status.
And then there’s college, assuming you have children.
“If you do not have college savings plan in place, the eventual tuition and fees that will be attributed to you should be considered and budgeted for,” she said. “You can also decide who will be the custodial parent to try and maximize any eventual grants and scholarships that might be available. The lower income parent generally speaking should file the FAFSA form and claim the child as a dependent.”
Consider meeting with a certified divorce financial analyst to get a full picture of the financial and tax implications of divorce.
“Divorce is a traumatic life event, and it’s often difficult to fully consider what your future will look like afterwards,” D’Agostini said, noting that certified divorce financial analysts are trained to navigate complicated financial situations and help create solutions when dividing one household income into two new homes.
“It is important to not only look short term, but into the future so that you are empowered to move forward,” she said. “You don’t want to sacrifice your retirement by trading assets to accomplish other goals.”
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