Financial Benefits of Divorce

Financial Benefits of Divorce: Divorce can be frighteningly expensive, from the cost of lawyers and financial planners, to loss of spousal income, to potentially having to start over in a new home. But that doesn’t mean that there can’t be a silver lining. While not an encouragement to run out and get a divorce, several benefits recently highlighted by U.S. News and World Report show the brighter side of a dark time.  

  • Easier budgeting and control of money. No more getting made about monetary problems which seem beyond your control, such as one spouse overspends or doesn’t consult with the other spouse about a purchase, or neglects to pay the credit card bill. No more arguments about which priorities should take precedence. You’re on your own now, managing your own money.
  • Opportunity to reset financial priorities. Financial experts say the opportunities to rethink priorities, such as having to downsize from a house to an apartment (and giving up an expensive and long term mortgage in the process) can be a positive thing.
  • Early access to a retirement fund, penalty-free. A divorce is one of the few times in life that a person can pull money out of a retirement account early and not pay an early withdrawal penalty. When an agreement known as a qualified domestic relations order (“QDRO”) is reached as part of a divorce, it allows for an early withdrawal from the account. This money is exempt from the typical 10 % penalty assessed on those younger than age 59 1/2, although income tax still needs to be paid if the money is not rolled into an IRA. This gives new divorcees options they may not have otherwise had in terms of cash flow.
  • Social Security perks for older divorcees. If you were age 62 by January 1, 2016, even if your ex hasn’t begun claiming social security, you can file a restricted application for Social Security spousal benefits and receive half of your spouse’s benefit while you defer your own and let it grow until you reach age 70. According to experts, this has no impact on the benefits the ex will receive and requires no coordination/communication with the ex.
  • More college financial aid for the kids. The Free Application for Federal Student Aid (“FAFSA”) only seeks financial information from the custodial parent, including child support and alimony. But divorcing parents are in the driver’s seat in regard to both of these support payments, and they can look ahead to structure settlements that take the best advantage of available government resources for higher education.  
  • Potentially better investment returns. Studies reflect that in a married couple, men usually take greater financial risks in terms of investments. A divorce can therefore be a positive for women seeking to get involved in investing, who may be taking an active role in their own retirement planning for the first time.  

[See LaPonsie, Maryalene for U.S. News and World Report. “7 Little-Known Financial Benefits of Divorce.” Full text at https://money.usnews.com/money/personal-finance/family-finance/articles/2017-09-29/7-little-known-financial-benefits-of-divorce. (Last Visited on December 21, 2018).