No matter how rich you are, divorce always hits hard on finances. How hard depends on the monetary worth of your divorce and how long the process lasts.
Those facing a high-asset divorce commonly experience the following five financial consequences. Some are out of your control, but some you can mitigate by taking proper action.
1. Higher legal fees
The more assets you have and the more complex they are, the longer your divorce may take. You must determine all your property, collect more records and utilize professional valuators. If you and your spouse cannot agree on property division, the judge will have to go through all the material to decide on the outcome. You can reduce the duration and cost of your divorce by trying cooperative methods, such as mediation.
2. Decrease in income
After splitting up property, your income is likely to be lower, at least temporarily. For example, you may have to pay child support or alimony. A portion of business profits and retirement may go to your ex-spouse. You may have to repurchase assets you lost. Even high-income earners can benefit from using a budget during and after divorce proceedings.
3. Lower credit
The expenses that come with marital dissolution, along with the division of property and debt, can impact your credit score. The good news is that you can quickly build it up again. Just be sure to sever all financial ties to your ex so creditors cannot come after you for your ex’s debt.
Divorce has multiple effects on the taxes you pay. Dividing assets often comes with immediate tax penalties. Filing your income taxes may be complex if your divorce spanned the course of two calendar years. In addition, only the parent with primary custody can claim any children as dependents.
5. Change in retirement benefits
Perhaps the most lucrative assets in a divorce, retirement accounts are subject to division, thus affecting the financial security of your future. You can talk to your lawyer about how to protect your retirement benefits to reduce the loss.