Untangling Your Finances When You Divorce: Don’t Forget These Important Details | Part Three | Taxes & Financial Planning
Filing Taxes as Single Can Take a Toll
Your tax-filing status will be your status as of the end of the year. This may cause your taxes to increase or lead to additional liability. If you are a W2 employee and have been withholding for most of the year based on being married, you may end up under-withholding if you now have to file as single. Married people get more tax breaks, so you could unexpectedly end up forking more over to the government. It is possible that you have been making estimated payments for that year, if so, who gets the benefit?
Also, if mortgage interest and property taxes were paid for that year, who gets to use the deductions? It is important to discuss these things upfront as they can trigger audits if they are deducted on both tax returns. This is especially true with listing dependents – if both spouses list the same child as a dependent, you can get in trouble with the IRS.
Retirement assets do not have the same value as after-tax assets – this should be kept in mind when splitting up assets. Uncle Sam owns a share of traditional IRA and retirement accounts. Work with your accountant/CPA to make sure these items are handled correctly.
Reconsider Your Financial Plan and Investment Allocation
After your divorce, can your financial plan work separately? Things are likely going to get tighter for both spouses because paying for one household may change to paying for two. Income in retirement may also decrease with respect to pensions and social security income.
If your income is significantly lower than your spouse’s, you are going to need to re-evaluate your budget and goals. Who is responsible for the children’s education? What goals do you now have as a single person?
Having a budget for each spouse and knowing what each person needs to survive alone should be calculated. There is no point in keeping a home or property you cannot afford to support alone.
Time for a New Risk Analysis
You may have done a risk analysis with your spouse and come up with an investment allocation together. At this point, your risk tolerance may have changed significantly or may be different to your collective results. You may need to go through the risk-analysis process again, which could lead to a change in your overall asset allocation.
Categories
Recent Insights
-
Why You Should Value Working for a Company That Offers Retirement Benefits
Not too long ago, I had a conversation with a business owner who surveyed employees about what they valued most in their compensation package. The list included healthcare, 401(k) benefits, and work-from-home flexibility. Surprisingly, the 401(k) plan didn’t come out on top. While this might seem understandable, especially for younger employees who have more pressing…
-
Smart Financial Planning for the Sandwich Generation
Introduction: Balancing Family and Finances Managing the financial needs of growing children and aging parents while planning for your own future can feel overwhelming. This dual responsibility is the hallmark of the Sandwich Generation, a group navigating complex financial obligations spanning multiple generations. With thoughtful planning, it’s possible to balance these demands without compromising your…
-
Talk Your Chart | Dividends, AI Investments, and Economic Splits | Episode 66
In this episode of Talk Your Chart, Brett and Marcos dive into the world of financial insights, discussing timely topics such as dividends outpacing inflation, the surging investments in AI, and the implications of foreign ownership in U.S. stocks. Don’t miss this engaging analysis with actionable takeaways! Charts available for download here.
-
Understanding Backdoor Roth and Mega Backdoor Roth Strategies
Maximizing Your Retirement Savings: What High Earners Need to Know For employees aiming to optimize their retirement savings—especially those with higher incomes—traditional contribution methods may not always be enough. This is where advanced strategies like the Backdoor Roth IRA and Mega Backdoor Roth come into play. These options provide a way to grow tax-free retirement…
-
Secure Your Legacy: Why Naming a Beneficiary for Your 401(k) Matters
When you participate in a 401(k) plan, you’re taking a significant step toward securing your financial future. But there’s an equally important, often overlooked, aspect of managing your plan: naming a beneficiary. This simple action ensures your loved ones are protected and minimizes complications if the unexpected happens. Here’s why it matters for both you…