Research suggests that divorce rates in the U.S. have been falling in recent decades. Still, many people face the difficult crossroads that comes when their marriage ends.

Getting a divorce is often a painful, emotional process. Don’t be in such a hurry to reach a settlement that you make poor decisions that can have life-long consequences. If divorce is a possibility or you’re already there, consider these financial thoughts as soon as possible:

The most important task you can do is get your finances organized. Identify all your assets and make copies of important financial papers, such as deeds, tax returns, and investment records. When it comes to dividing up your assets, consider mediation as a low-cost alternative to litigation. Most states have equitable-distribution laws that require shared assets to be divided 50/50 anyway. When a divorce becomes contentious, attorney’s fees can accumulate.

From a financial perspective, divorce can mean taking all the income previously used to run one household and stretching it out over two residences, two utility bills, two grocery lists, etc. There are other hidden costs as well, such as counseling for you or your children. Divorces also may require incurring one-time fees, such as a security deposit on a rental property, moving costs, or increased childcare.

Finally, dividing assets may sound simple, but it can be quite complex. The forced sale of a home or investment portfolio may have tax consequences. Potential tax liability also can make two seemingly equal assets have varying net values. Additionally, when pulling apart a portfolio, it makes sense to consider how each asset will suit the prospective recipient in terms of risk tolerance and liquidity.

During a divorce, many factors compete for attention. By understanding a few key concepts, you may be able to avoid making costly financial mistakes.

Remember, the information in this article is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.

Sources:

1. CDC.gov, 2022

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The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.

Published for the blog on June 22, 2023 by Allos Investment Advisors®, LLC.