Divorce requires financial planning

On Behalf of | Jan 18, 2021 | Divorce |

Ending a marriage requires planning for most aspects of your life. Before you divorce or separate, you need to assure that your financial and legal plans meet your future needs.

Prenuptial and postnuptial agreements

A prenuptial agreement entered before marriage or a postnuptial agreement executed afterwards can help govern property division. These also have advantages for couples if one spouse is involved in a business or owns complex financial instruments, collectibles or assets that are difficult to value. It can protect a spouse’s business interest or compensate a spouse who gives up an asset in settlement.


Determine how much you now spend each year individually and as a couple and prepare a budget. There are many financial issues that need addressed.

First, consider how common expenses such as school tuition and the children’s activities will be allocated. Couples may have to pay for additional transportation costs for child visitation or consider moving closer.

Spouses will pay expenses with one income that were previously shared. Determine whether your income can cover household expenses. If expenses exceed your income, you should consider options such as reallocating investments or reducing spending.


Spouses are not required to pay taxes on assets received in settlement if the transfer occurs within one year after the marriage ends or is related to its dissolution. To be related, the settlement must typically occur within six years after the marriage ends and come from terms in your original or modified settlement or decree.

There may be some tax consequences, however, for nonresident aliens. Unnecessary taxes may also be incurred if a qualified domestic relations order is not issued for dividing qualified plans.

While property allocated through a settlement may not have tax liability, there may be capital gains taxes for the sale of assets that appreciated. The cost basis and potential tax consequences of any assets should be considered.

There have been tax changes for spousal support. Alimony for divorces entered since 2019 is no longer deductible or reportable as income by the recipient spouse.

Other considerations

Spouses should also consider funding continuing obligations to their former spouse. For example, they can obtain life insurance to fund obligations such as child or spousal support or college tuition payments.

You need to consider how assets are valued, whether these assets are liquid, and how property in the divorce can meet your financial needs.

The home deserves special consideration. In addition to the cost of keeping it, one spouse will have to refinance the mortgage. It may also be sold.

An attorney can help you consider these matters. They can also help seek a fair and reasonable decree.