A divorce can have significant financial consequences for California residents and anyone else going through the process. Individuals could need up to 30% more money to maintain their standard of living after the end of their marriages, according to the 2018 National Retirement Risk Index. At a minimum, a newly single person will need to create a budget that takes his or her new reality into account. The new budget may need to include paying alimony or child support to a former spouse.
It will be important that individuals who make or receive these payments consider the tax implications. As a general rule, the person who receives alimony does not report it as income. There may also be tax consequences to consider in the event that a home or other asset is split or sold in a divorce settlement. In some cases, retirement assets, such as money in a 401(k), will need to be divided.
This may mean that an individual has to go back to work or push back his or her retirement date to make up the lost income. Those who were on a former spouse’s health, auto or another type of insurance policy may need to purchase their own coverage after getting divorced. It may also be worthwhile to look into buying disability insurance after a divorce as well.
A divorce could result in an individual being responsible for housing and other payments that he or she didn’t have to cover in the past. In most cases, a single person will need to pay bills with less money coming in. That may be problematic even if that individual has experience managing his or her own finances. An attorney may help someone obtain alimony or other help maintaining a reasonable standard of living after the end of a marriage.