- Did you know that roughly four out of 10 marriages end in divorce?
- I mean, I get it.
- That number has come down somewhat since the 1980s, but.
(record scratches) Wait, what do you mean you get it?
- Oh, just the things don't always work out the way you envision.
- Go on.
- Well, for example, I was fairly certain when I was little that my husband would be- - Yes?
- Jonathan Taylor Thomas.
But I'm glad he's not.
This is so much better.
- For one reason or another- - I'm pretty sure.
- For one reason or another, lots of marriages simply run their course, and finding yourself suddenly single is a major life change that can turn your finances upside down.
- When it comes to untangling your money and starting over, what happens to your debt?
How are your assets divided?
How do your taxes change, and what does it all mean for your income?
- Jonathan Taylor Thomas.
(uplifting music) - Divorce can be a wealth strangler.
If you hire a divorce attorney to handle all the nuts and bolts, you could easily drop tens of thousands of dollars on legal fees.
Attorneys do a lot, like negotiating with your spouse's lawyer on your behalf, drawing up paperwork and correctly filing so all of your divorce is legal in the eyes of the law.
- You'll probably keep more money in your pocket going through mediation.
This involves hiring a neutral third party who is specially trained in divorce law and dispute resolution to help you work out the details of the split.
Mediation is typically faster, cheaper, and less stressful, though it may entail hiring some other experts like an appraiser to value your property, a social worker to weigh in on child custody questions, and perhaps even a lawyer since mediators cannot give legal advice.
Mediation can be a solid option if you have a straightforward divorce where both parties are in agreement on most things.
But if you're butting heads and things drag on, the final bill can get hefty.
- Divorce could throw a lower earning spouse into financially choppy waters, especially if they've been a stay at home parent.
All of a sudden they're on their own to manage their money and keep up their household as a single person.
Think of alimony, aka spousal support, as a temporary lifeline, one spouse provides financial support for a predetermined amount of time so that other can catch their breath.
Every state has its own rules for determining alimony, but both parties' income and expenses usually come into play.
The idea is to enable the lower earning spouse to maintain a similar standard of living post divorce.
- Raising kids comes with a lot of expenses too.
There's food, clothing, housing, healthcare, activities, and so much more.
Child support swoops in to make sure that each parent continues paying their fair share after the divorce.
Each state has its own guidelines for calculating it, but certain factors tend to carry the most weight, namely your income, your ex's income, the number of children you have, their unique needs and your custody arrangement.
It's usually structured as a monthly payment that fades out as each child comes of age.
- Chances are going from a two income household to the single life is going to affect your lifestyle.
If you own a home with your soon to be ex, you'll have to figure out what to do with your digs.
A property appraisal can clarify the numbers.
One of you could buy the other out either with cash or by giving up other assets, like investments or retirement accounts.
The one keeping the property would then refinance the mortgage into their name, or you might agree to sell the property and split the profit 50/50 before going your separate ways.
- How you split up your debt depends a lot on what state you live in.
In some, a judge may decide to use their own discretion to break up your debt based on factors like income, employment and who accumulated it.
In other states, marital debt is simply split down the middle, and that's that.
- Let's say you've each got some student debt and credit cards, but one spouse has way more debt than the other.
Unless you can agree on how to split it up, you'll have to go to the court and let the judge decide based on state laws.
- The IRS doesn't care if you're married or divorced, they just wanna get paid.
During tax time, you'll likely go from filing jointly to doing it solo, sounds easy enough, but things can get sticky the year you get divorced.
Married couples benefit from certain tax breaks so your accountant might actually suggest filing jointly if you're separated but not yet divorced.
- When you do start filing your taxes separately and you've got kiddos, you guys will have to figure out who's claiming them as dependents.
It's important because it could open the door for some nice tax credits.
- One other thing, alimony and child support don't count as taxable income.
Good news for the receiving spouse, but the spouse making these payments can't write it off as a tax deduction either.
Sorry, but that's the rule as of 2019.
- Yikes, this stuff is kind of a downer, huh?
- Yeah, but it can also be a teachable moment for couples who want to turn things around and grow together.
- Couple's therapy can be a game changer.
Think of it as routine maintenance to help keep your relationship going strong.
We've been going for 13 years, and it's made all the difference.
- Or you might find that you'd be truly happier starting a new chapter on your own.
Maybe you'll meet somebody new and better like Jonathan Taylor Thomas - Save it for therapy.