Divorce is a challenging life event that can have significant financial implications. Whether you are considering divorce, in the midst of one or have recently finalized your divorce in Texas, careful financial planning can help secure your financial future.
One thing to keep in mind is that Texas is a community property state, meaning assets and debts acquired during the marriage are generally community property with equal division.
Before divorce: Establish a solid budget
Texas has a very low divorce rate at 1.4 divorces per 1,000 people. However, your financial planning for life after divorce needs to start as early as possible.
Before filing for divorce, create a comprehensive budget. Start by tracking your expenses and income to understand your financial situation. Make a list of all your assets and debts, including joint accounts and individual assets. This information will serve as the foundation for property division negotiations. Identify essential and discretionary expenses, and consider how your lifestyle might change post-divorce.
During divorce: Divide debts wisely
During the divorce process in Texas, property and debt division should be as fair as possible for both parties. Work with your spouse to reach an agreement on how to split debts.
Prioritize paying off high-interest debts, such as credit card balances, jointly. Create a plan for separating joint accounts and opening individual accounts. Consult with a financial advisor if necessary to ensure the fair distribution of assets and debts.
After divorce: Consider taxes, retirement plans and various types of insurance
After your divorce is final, update your tax status with the IRS. You may need to change your filing status from married to single or head of household. Understand the tax implications of any assets you receive during the divorce, as some may have capital gains tax consequences.
Consider how alimony and child support payments will affect your taxes. Alimony is typically taxable income for the recipient and deductible for the payer, while child support is not taxable or deductible. Review your withholding allowances and make any necessary adjustments to ensure you are not overpaying or underpaying taxes.
Divorce can impact your retirement plans significantly. Review and update your retirement accounts, such as 401(k)s and IRAs, to reflect your new financial situation. You may need to revise your retirement goals and contributions accordingly. Ensure that you update beneficiaries on life insurance policies and retirement accounts. Consider purchasing health insurance if your spouse’s plan previously covered you.