Understanding the Financial Implications of Divorce

Marriage is typed on a torn piece of paper. Money is peeking between the edges of the ripped paper. Broken wedding rings are placed on top of the paper. Visual concept for blog titled: Financial implications of divorce

Divorce is a disruptive event in anyone’s life. It often involves new housing, a change in employment for at least one party, a division of financial assets and retirement funds, and of course attorney fees. But there are also other financial concerns to be aware of in your Connecticut divorce. Discussing the financial implications of divorce with your attorney early on can help you be better prepared during and after the case.

How are Divorce Financial Concerns Addressed?

Financial concerns directly connect with three portions of a Connecticut Divorce:

  • Child support
  • Alimony
  • Property division

Within these three categories, there are dozens, if not hundreds of financial questions that could be addressed, depending on your situation. It is important that you have a thorough discussion with your Connecticut divorce attorney about your current and future financial needs as you prepare to file or defend your divorce action. This may include:

  • Budgeting for your current or anticipated living expenses
  • Accounting for shortfalls or gaps in income
  • Shielding income-producing assets
  • Addressing funds necessary for timely retirement
  • Considering tax consequences of dividing certain assets

While some of these issues will develop over the course of your divorce, others may need to be addressed as early as the initial filing of the complaint. This is one reason why you should take an active role in financially planning your divorce even before you and your spouse separate.

How to Address Financial Concerns During Divorce

Connecticut law allows family courts to award either party “temporary alimony” while their separation or divorce is pending. Also called “pendente lite” alimony, it is designed to provide support to a financially dependent spouse when they are separated, but not yet legally divorced. Similarly, a Connecticut court can order either parent to pay temporary child support (most often to the other parent) during the same period. This child support is designed to make sure the child’s needs are met until a final child support order can be entered along with the judgment of divorce. Both temporary child support and temporary alimony awards expire when the judgment is entered. However, that judgment can include the same terms and can carry over any unpaid balances (arrears) or overpayment credits.

In addition, when a divorce is filed in Connecticut, it triggers automatic “status quo” orders preventing either party from selling or disposing of property, taking out new loans, incurring “unreasonable debts”, removing the other or the children from health or life insurance policies or evicting one another from the marital home. These automatic orders can help to preserve the family’s assets and ensure you can properly plan for your financial future. However, they can also create obstacles for parties seeking to separate, obtain new lines of credit, or otherwise disentangle their financial affairs. In those cases, you may need either your spouse’s consent or a court order to perform the steps needed to begin transitioning to the next chapter of your life.

What are the Financial Implications of Divorce?

It must be said that no one comes out of a divorce without some financial impact. Connecticut divorce law is designed not to give either spouse the advantage in most cases. However, one household is still becoming two, and, to a greater or lesser extent, both spouses are losing access to one another’s support, financially as well as emotionally . This transition often brings with it financial implications from new household expenses to increased childcare costs.

In addition, the property division portion of any divorce can often feel like you are losing assets to your spouse. You may see your retirement or investment portfolios shrink or be awarded less than you anticipated as equity in the marital home or business. Even the costs of replacing personal property items can add up. In high-conflict divorce litigation, both parties can also spend far more money than necessary defending against motions filed by the other party. This can make it difficult to budget for your divorce and avoid coming out of the case with more debt.

Financial Consequences of Divorce Post-Judgment

Once the Judgment is entered, you will be legally single, but financially, you may still have connections to your ex-spouse. You may need to:

  • Open new bank accounts
  • Redirect direct deposits or automatic payments
  • Transfer debt into your own name
  • Refinance properties to remove your spouse’s liability
  • Pay off debts to avoid allowing your spouse to continue to affect your credit.

It is important to remember that, just because your spouse was ordered to pay a marital debt doesn’t mean that creditors won’t try to collect from you if they fail. It is often wisest to transfer all debt into accounts held separately and close joint accounts to protect both parties from unintended financial consequences of divorce, and to make that part of the final judgment. Ask your attorney to create a checklist of everything you need to do in the days after your divorce, and don’t forget to ask if any of it can be started before the final judgment is entered.

It is also important to consider the tax consequences of divorce. While property transferred pursuant to a judgment of divorce is not subject to federal taxes, you could face taxes and penalties if you need to withdraw funds from a restricted account (such as a 401(k) retirement plan) in the months following your divorce. However, dividing retirement assets as required by a divorce judgment can be accomplished tax-free by means of a qualified domestic relations order, “QDRO” for short.

The Connecticut divorce attorneys at Lawrence & Jurkiewicz, LLC represent divorcing spouses and parents throughout the greater Hartford area and the Litchfield County area. We can help you identify, prepare for, and address your financial concerns when divorcing, so you are set up for success after the judgment is entered. We offer consultations by in-person appointment, phone conferences and zoom meetings. Please call us at (860) 264-1551 or contact us to schedule a confidential consultation to see how we can help you.

Categories: Divorce