Steering You Toward Your Best Options

Understanding the financial impact of divorce

On Behalf of | Oct 28, 2016 | Divorce

There are several financial issues that couples must consider when their marriage is coming to an end. As a community property state, Texas law in general requires all assets acquired during the marriage to be divided equally. However, there are a few exceptions, such as inheritances and gifts that have not been commingled.

While assets are a major focus, debt can create challenging circumstances as well. This is especially true if there are still joint accounts in place after a divorce is finalized. People need to understand that a legal agreement to pay back a loan or a credit line continues to be valid after a marriage ends, regardless of what the settlement language or court order says.

There can also be income tax consequences. For example, the change from married to single can lead to a higher tax bracket for each party. Additionally, only one parent can normally claim the children as dependents when filing, which can impact the other parent’s tax obligations. The custodial parent typically has the right to claim children, but this might be challenged in certain situations. Child support can be a costly issue for the parent owing this amount. Spousal support can also be challenging, but these payments can be deducted from taxes by the payer and must be reported as income by the recipient.

Arriving at a divorce settlement without going to court can save a great deal of money, but it is still wise to have the representation of an attorney during the process. Any agreements that are negotiated, for example, should be legally documented to ensure that a failure to pay alimony or child support, for example, can be addressed through the court system.