Aug 2, 2022
Are there Financial Benefits to Divorce?
Divorce can be very difficult even in times when the economy is good, but there are some financial silver linings that can still be found even when an economy is struggling.
What each person thinking of divorce needs to look at is the opportunity to rethink possibilities and priorities and a fresh start for both parties.
Michael Hughes, Esq., an attorney-mediator at Alpha Center for Divorce Mediation, discusses some financial silver linings that can still be found even when an economy is struggling.
Divorce can bring its own financial worries as newly single people may be left with less income to cover outstanding bills, but it does not have to be all bad news for new divorcees. There are some potential upsides to their new life:
1. A single person now has greater control over their own money.
2. During a divorce, a divorcee may have early access to a retirement fund without penalty.
3. With a single income, there may be better college financial aid for children.
4. Parties now have an opportunity to look at and redetermine their financial priorities.
One of the great issues leading to divorces is arguments over the finances of the household. The end of a marriage can mean the end of fights over money. There are no more arguments over a budget and spending.
This may now give a partner who wanted to save, the opportunity to save and, they can shift money to their own personal goals and priorities.
Additionally, a divorce is one of the rare times that a person can take money out of a retirement account when they are not retirement age and not be liable for an early withdraw penalty. If the parties reach an agreement for a division of a retirement account, a qualified domestic relations order will be prepared and approved that permits an early withdraw from the account. This money is exempt from the typical 10% penalty assessed to parties that are younger than age 59 ½. However, the parties will still be liable for income tax on the money disbursed if it is not rolled into another retirement account.
Each party must weigh the benefits of cashing out a portion of a retirement account, but it can give some newly divorced people some options that they may not have otherwise had, such as a down payment for a new home.
Another potential benefit to someone going through a divorce is filing for college financial aid. If you are contemplating divorce and have children who are college age or approaching college age, you may come out ahead as a custodial parent. The Free Application for Federal Student Aid only requires financial information from the custodial parent, rather than both parents. However, child support and alimony received from the non-custodial parent must be included on the FAFSA. Accordingly, while your income may be lowered going through and after a divorce, it may put you in a better situation to get more financial aid.
Finally, it is clear that divorce can cause some tough feelings and unknown situations for people going through it, but it does create the opportunity to rethink financial and personal priorities and start fresh. While this adjustment may be difficult for people going through the divorce, this may be financially beneficial to both parties in the long run.
Divorce doesn’t have to mean that you end up with no money in your bank account. Even on a lower income, divorced people can continue to build up their resources and income by changing their priorities and making smart decisions with the resources they have.
Alpha Center for Divorce Mediation