How Finances May be Affected by Divorce

Divorce is disruptive, stressful, emotional and life-changing. It’s also financially impactful. Many divorces lead to a lower standard of living for one or both former spouses. Two Households and Gender Income Discrepancies Clearly, it’s cheaper for two people to maintain one household together than to maintain two, separately. The burden of expenses is no longer shared and the benefits of two incomes is gone. This is one of the main ways that divorce detrimentally impacts the finances of divorcing spouses. Marriage dissolution typically hits women harder financially. This is due in large part to the pay inequities between male and female workers. The most recent statistics show an overall gender pay gap of 22 percent – on average, women earn 79 cents for every dollar a man earns. In New York, the gap is smaller, at 11 percent. For minority women, the disparity is greater. rnWhen couples pool their money, the impact of these pay differences is lessened. Additionally, in most marriages, men are more likely to manage the couple’s finances. Once they separate, the woman is often left struggling to survive on one income with higher expenses and minimum experience with financial management and budgeting. On a positive tip, these financial challenges may be lessened at retirement for some single women. Retirement Woes In June 2018, the Center for Retirement Research at Boston College released its report on how divorce impacts retirement security. The findings confirm that the results of divorce include a higher risk of failing to maintain “their standard of living in retirement.” However, there is some good news for divorced moms who keep the home in a divorce settlement. While childcare is a financial burden they typically bear, once these women reach retirement age, their house represents a valuable asset. The National Retirement Risk Index highlights the ability to obtain a reverse mortgage to help finance their retirement years. Tax Implications Federal income tax deductibles differ for single individuals and married couples, which may result in a higher tax burden for divorced spouses. If there are children of the marriage, dependent deductions must be allocated to one parent rather than both together.The tax benefits of owning real estate are no longer shared, and if the couple has to sell the home in the divorce, they are lost altogether. Taxes on alimony payments will have a financial impact on taxes as well. These issues should be considered when negotiating an equitable divorce settlement. Negotiating a Fair Divorce Settlement These financial challenges highlight the need to ensure meticulous negotiation of your divorce settlement. Issues like property division, alimony and child support can have dire consequences if one spouse is treated unfairly. Our New York Divorce Attorneys are skilled in this area and we work hard to help our clients get what they need and deserve when leaving a marriage. Contact us to learn how we can help you.