Personal Finance Essentials

Financial Planning Through Divorce

Divorce Is Painful

The Financial Mistakes People Make During It Can Last a Lifetime

Divorce

If both you and your spouse reach age 65, one of you can be expected to live to age 90. That is a long time, and the later years often bring the need for long-term care.

The financial impact can be severe. Half of all older Americans living alone will spend themselves into poverty after just 13 weeks in a nursing home. Among married couples, 56% will spend down their income to the poverty level after one spouse has spent six months in a nursing home. Sixty percent of people worry that they or their spouse will require long-term care at some point.

Long-term care insurance matters not just for the person who needs care but for the spouse who does not. Even if you have sufficient assets to cover nursing home costs, spending them down depletes what you leave to your surviving spouse, your children and other heirs. Planning for this possibility – ideally while you are still healthy enough to qualify for coverage at a reasonable cost – is one of the most protective things a married couple can do for each other.

Key Financial Considerations in Divorce

Several areas require particular attention:

Child Support vs. Alimony
Child support payments are not tax-deductible for the payer and are tax-free for the recipient; they end when the child reaches adulthood. Alimony is deductible for the payer, taxable for the recipient and ends when the recipient remarries unless otherwise agreed.
Alimony
Insurance
If you receive alimony or child support, require your ex-spouse to carry life and disability insurance naming you as owner – so payments continue even if the ex dies or becomes disabled.
Insurance
Retirement Accounts
These are often the largest asset in a marriage. A Qualified Domestic Relations Order (QDRO) is required to divide them. Rolling assets directly into an IRA avoids immediate taxes for both parties.
Retirement Planning
Investment Accounts
Split by number of shares, not current value. Don’t let the spouse who managed the investments determine how they are divided.
Credit
Close all joint accounts as soon as you believe the marriage may end. Both parties remain legally liable for joint debt regardless of what the decree says.
The Family Home
The couple’s ability to afford the mortgage was based on combined income. Losing half that income often makes keeping the house impossible – even if it doesn’t feel that way in the moment.

Divorce almost always means a lower standard of living for both parties. Accepting that reality early and making decisions based on economic logic rather than emotion will produce a better long-term outcome for everyone involved, including children.