Financial planning for divorce — it's not just for women

  • First step? Create a post-divorce settlement budget.
  • Be aware that alimony, unlike child support, is considered earned income.
  • How and when to claim Social Security benefits could determine whether — from a financial perspective — you should remarry.
  • Review beneficiaries on Employer Qualified Plans, IRAs, annuities and life insurance policies.

Getting divorced is both complicated and challenging — for either spouse. With more women completing higher-education degrees and holding more leadership roles in the workplace, it is not unusual now for a female to be either the breadwinner in a relationship or the individual who has taken on the role of handling the financial affairs in the household. So when a couple is contemplating or going through a divorce, there are many key items that both spouses should think about preparing.

Below are five areas for spouses of any gender to consider while going through a divorce or even after the divorce is final.

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A post-divorce settlement budget. Let's face it, money is usually the one thing most people worry about when getting divorced. Gathering all of your financial information is a key first step. This will help you determine your assets and liabilities. Next, create a budget; this is vital when going through a divorce. Each spouse needs to determine debts that will need to be paid, whether the house will be kept or if it will need to be sold and the proceeds divided. Often, individuals overlook budgeting for future needs, and goals such as a new car or vacations.

If you have children, you will want to think about how to take care of college. Will you each save a certain amount? Will one spouse take care of the tuition? Or will your children be on their own to obtain financial aid? Other future events, such as weddings, will need to be discussed and put into your budget.

Alimony. In many cases when couples divorce, alimony is paid by one spouse to the other, and this could be in addition to child support. Child support is not taxable to the person receiving it, but that also means it is not tax-deductible by the payer.

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The opposite is true for alimony. Individuals who pay alimony can deduct that amount on their tax return, and the person receiving it must report that amount as income for tax purposes. For some, alimony and child support may be the only income they are receiving, and they may not feel they have the opportunity to save for retirement. This may not be the case.

Monies received from alimony are considered income, so an individual can contribute up to $5,500 per year for 2017 or the amount of alimony received per year, whichever is less. If you are over age 50, the contribution limit amount is $6,500 per year.

Most individuals are not aware that they can make these contributions, and depending on your tax situation, you may be able to deduct your contribution to your traditional IRA. Consult a tax advisor to see if you are eligible.

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Social Security — and remarriage. How and when to claim Social Security benefits can be very confusing as a married couple. It can be even more complicated when you get divorced. If you were married for 10 years or more, you can claim spousal benefits on your divorced spouse. But what if you decide to remarry? The rule to claim spousal benefits is limited to one spouse, so if you remarry, you lose the opportunity to claim benefits on your ex-spouse. Depending on your ex's earning, your current earnings and your new partner's earnings, it may not be advantageous to remarry. Here are some situations to consider:

  1. Compare the divorced spouse benefit from the ex-spouse to the potential benefits of the new spouse. If the divorced spouse benefit is higher, remarriage would cause the loss of this benefit.
  2. If the spousal benefit for the new spouse is higher, go ahead and get married.
  3. If both individuals are eligible for divorced spouse benefits, you will need to compare both divorced benefits to the new spousal benefit. This will help you determine if you would receive more in spousal benefits by staying single.

Investment planning after divorce. Knowing what you have and how much you need for the future may change the way you invest today (as opposed to when you were married). You should work with a financial advisor to help determine your risk tolerance and your portfolio's asset mix of equities and fixed income based on your current income needs and goals.

"Rewriting your will ensures that your assets are distributed according to your wishes. If you have minor children, be sure to discuss guardianship with your ex-spouse."

Planning and updating documents. Review your beneficiaries on your Employer Qualified Plan, IRAs, annuities and life insurance policies. These assets transfer via beneficiary at your death, not through your will. If you leave your ex-spouse as a beneficiary on these assets, they will be paid to him or her — which is probably not what you prefer to happen.

Assets titled in your individual name will be distributed through your will. Certain assets that are not distributed through your will include those titled as joint tenant with rights of survivorship, transfer on death, assets that have a beneficiary listed and trusts.

Rewriting your will ensures that your assets are distributed according to your wishes. If you have minor children, be sure to discuss guardianship with your ex-spouse.

Next, review any trusts that are in place, whether they are revocable or irrevocable. Finally, be sure to change your power of attorney and health-care proxy/living will. Remember, if you do not have a will, your state will determine how your assets are distributed.

— By Beth D. Lynch, CFP, director of financial planning and investment relationship manager at Schneider Downs Wealth Management Advisors

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