10 Financial Impacts of Divorce

Jun 27, 2024 7:45:00 AM

Divorce can significantly impact various aspects of life, including your overall financial well-being. Understanding these impacts and planning accordingly can help you navigate the challenges and changes that divorce brings.

Monthly Budget

Your income and expenses will almost certainly change with divorce. Even if you receive child support and/or spousal maintenance payments, it’s doubtful your standard of living will stay the same. One or both of you may need to downsize your home or lifestyle.

Retirement Plan

Retirement assets are sometimes divided in a divorce. The retirement you planned for as a couple may not be achievable as an individual. Understanding how the division of assets impacts your personal retirement plan will be important.

Job Situation

You may find yourself getting back into the workforce or needing to change jobs or career paths due to your divorce. In situations where one spouse is the breadwinner, they may need to provide financial support while the non-working spouse, or lower-income earning spouse, finds a job or changes jobs or positions. In cases where it may not be possible for the non-working spouse to get a job, financial support may be needed for an extended period.

Child Support

If you have minor children, your parenting plan will include a custody arrangement that dictates how much time the children spend with each parent. Depending on each parent’s capacity to financially provide for the children during their scheduled time, child support payments may be necessary.

Credit Score

Often overlooked during a divorce is its potential impact on your credit score.  In cases where you jointly own debt, divorce can change the credit scores and credit limit capacity for both spouses. It’s difficult to remove a spouse from certain joint debts, such as a mortgage, but refinancing can be an option to achieve that. In the case of joint credit cards with two authorized users, the primary cardholder can often remove the other authorized user. Any changes in your financial situation as a result of divorce, such as debt, credit limits, credit history, etc., may impact your overall credit score.

Housing Situation

If you co-own or co-lease a home, one or both of you may need to move or consider other housing options. Living arrangements can be tricky when one spouse wants to remain in the home and the other spouse needs to buy or rent a new home. If there is equity in the current home that needs to be split between both spouses, it may be possible to pay one spouse their share of the equity using other investment assets. Other times, equity may be shared or split when the home sells at a later date. Sometimes, the simplest solution is to sell the family home, divide the equity and move into two new living situations.

Insurance Coverage

You will want to review and assess your insurance coverage, from life and health insurance to auto and homeowner policies. Do you need to change the beneficiaries on your life insurance? In some situations, additional life insurance may be required to cover child support or spousal support obligations.


Your tax filing status is determined by your marital status at the end of the year. Typically, married couples filing jointly pay less in taxes. After a divorce, you will file as Single or Head of Household if you have dependents. As a result of your filing status change, you may see a significant change in your tax bill. Lower income earners may qualify for certain credits or deductions they didn’t otherwise qualify for, while a higher income earner may see an increase in their tax bill.

Estate Plan

You and your spouse may have drafted a will, power of attorney and health care directive while you were married. These documents would have appointed certain people to carry out specific tasks if you died or became incapacitated. We recommend reviewing all of these documents as soon as possible if you are considering divorce. Talk with your attorney to see what changes can be made immediately. Once the divorce is final, revisit your estate plan and make the appropriate changes. You may decide to name different people for certain roles, such as personal representative or executor. You may even want to change the legal guardian you select for your minor children. Remember to review and update the beneficiaries of your will and any financial accounts.

Your Personal Financial Plan

Your complete financial plan should be reviewed to understand how your new situation impacts your future. Consider all your fixed expenses and sources of income as well as your savings and retirement assets. A financial adviser can help you assess your current situation, set up a new household budget and determine how much money you’ll need to retire. Together, you can develop a customized plan to protect your financial future and reach your retirement goals.

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Investment Advisory services offered through Birchwood Financial Partners, Inc. an SEC Registered Investment Advisor.

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