Category: Divorce
1.4.25
Category: Divorce
Written by Olivia St. Clair Long on 12.6.24
As the year comes to a close, financial planning takes center stage, especially for individuals navigating the complexities of a divorce settlement. Whether you’re finalizing a divorce or have already settled, understanding the financial implications of your agreement is essential for starting the new year with confidence. From tax obligations to budget adjustments, taking time to review and prepare can save you from surprises and ensure your financial stability moving forward.
Below, we’ll explore key financial considerations to remember before the year ends, why they matter, and how you can stay prepared for the year ahead.
Divorce can significantly impact your tax obligations, making it vital to review your financial situation with a tax professional before the new year.
Your marital status as of December 31 determines your tax filing status for the year. If your divorce is finalized by the end of the year, you will no longer qualify to file as “married filing jointly,” which could lead to changes in your tax liability. Depending on your circumstances, you may need to file as “single” or “head of household,” the latter of which can offer favorable deductions if you meet certain criteria.
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced significant changes to how spousal maintenance is taxed. For divorce agreements finalized after 2018, spousal maintenance payments are no longer tax-deductible for the payer, nor are they considered taxable income for the recipient. Conversely, child support remains non-taxable for the recipient and non-deductible for the payer. Understanding these distinctions is critical for accurate financial planning and tax preparation.
Post-divorce, only one parent can claim a child as a dependent on their taxes per year. This decision is often outlined in the divorce settlement, frequently with parents either alternating who claims a child, or with each parent claiming one child. It is still important to revisit this arrangement yearly, especially as your children get older. Claiming dependents can impact eligibility for tax credits, such as the Child Tax Credit, and deductions. Ensure this detail is clear and agreed upon to avoid disputes or errors in tax filing.
Dividing assets during a divorce is rarely straightforward, and a year-end review can help you ensure that everything has been properly handled.
Assets such as real estate, investment portfolios, and retirement accounts can fluctuate in value throughout the year. Revisiting their valuation at year-end ensures an equitable division and helps identify any potential discrepancies in your settlement.
If your settlement includes dividing retirement funds, make sure all Qualified Domestic Relations Orders (QDROs) are properly executed. These legal orders are necessary to ensure a smooth, tax-advantaged transfer of funds from one party to another.
Take this time to align your divorce settlement with your long-term financial goals. Are you on track to save for retirement, cover educational expenses, or maintain an emergency fund? A thorough review can help you address gaps and make adjustments.
Post-divorce, financial independence requires careful planning to create a stable and sustainable lifestyle.
Divorce often comes with a shift in income and expenses. Start by creating a budget that accounts for your new financial reality, including living expenses, support payments, and any changes to your earnings.
If you share debts with your former spouse, ensure they are addressed in the settlement. Monitor your credit score closely to identify any issues, such as missed payments or unauthorized charges, and take steps to rebuild your credit if necessary.
Divorce may change your health insurance coverage. If you were previously covered under your spouse’s plan, you may need to explore new options if COBRA is not available to you. New options can include an employer-sponsored plan or private insurance. Review other benefits, such as life insurance and retirement contributions, to update beneficiaries and ensure continuous coverage.
While property division cannot be changed after a divorce, support payments, such as maintenance and child support, can change. As life changes, it’s important to revisit the terms to ensure they remain relevant and effective.
If you or your former spouse have experienced significant changes in income or financial circumstances, it may be necessary to modify spousal maintenance (formerly known as alimony) or child support amounts to reflect these changes.
Parenting plans should evolve to accommodate your children’s changing needs. Year-end is a great time to assess schedules, support agreements, and other arrangements to ensure they continue to serve everyone’s best interests.
Review all aspects of your settlement to verify compliance. Are support payments being made on time? Have all assets been divided as agreed? Addressing these issues now can help prevent disputes and complications in the future.
Navigating the financial aspects of a divorce settlement is challenging, but you don’t have to do it alone. An experienced divorce attorney at O. Long Law, LLC can provide the clarity and guidance you need to make informed decisions.
At O. Long Law, LLC, we focus on helping clients understand the financial implications of their divorce agreements and ensure that their settlements support long-term financial stability. Our team is here to review your settlement, address any concerns, and help you navigate modifications if necessary.
Year-end financial planning is essential for anyone going through or recovering from a divorce. By understanding the tax implications, revisiting asset divisions, and preparing for financial independence, you can enter the new year with confidence and peace of mind. If you’re unsure about any aspect of your divorce settlement or want to ensure you’re financially prepared for the year ahead, schedule a consultation with O. Long Law, LLC today. We can connect you with a trusted network of financial professionals who can help.
Get the peace of mind you deserve as you enter the new year. Contact O. Long Law, LLC today to review your divorce settlement and financial standing with our experienced legal team.