Working through the financial aspects of divorce, such as taxes, debt division, and future planning can be challenging, but the aid of skilled professionals – like your divorce attorney, financial planners, and tax experts – can give you a clear strategy for moving forward.
Key Takeaways:
- Divorce will change your tax filing status and could affect child tax benefits, spousal support, and how you file taxes.
- Understanding the difference between marital and separate debt is crucial for a fair division, and protecting your credit after divorce is a key concern.
- Post-divorce, it’s important to rework your budget, manage your retirement accounts, and update your insurance policies to secure your financial future.
When most people think about divorce, they likely think mostly about the emotional toll it can take on individuals and their families, which is understandable; no one thinks divorce will be a part of their future when they first say “I do.” But beyond the emotional toll, there’s a practical side that needs to be addressed – especially when it comes to finances.
Whether you’ve been married for just a few years or it’s been decades since you exchanged vows, the financial implications of divorce can feel overwhelming. Suddenly, you’re facing questions about how your assets will be divided, how your taxes will change, and how you’ll plan for a secure future on your own.
If you’re going through a divorce in Nebraska (or even just considering one), you might be wondering where to start when it comes to managing the financial side of things. Don’t worry; you’re not alone. It’s totally normal to feel a bit lost, but with the right guidance, you can get through this.
Understanding the basics of taxes, debt division, and future financial planning will empower you to make informed decisions and set yourself up for success after divorce. In this blog, we’ll break down the key financial aspects you need to know in a simple, straightforward way, so you can navigate the end of this chapter with confidence.
Understanding Divorce and Taxes in Nebraska: How Your Filing Status Will Change
When you divorce, your tax situation can change drastically. In Nebraska, as in most states, your tax filing status will change, and that can have both positive and negative financial impacts. Here’s what you need to keep in mind:
1. Filing Status Changes
After a divorce, you won’t be able to file as “married” anymore. Instead, you’ll likely file as “single” or, if you meet certain criteria, “head of household.” If you have children, you may qualify for head of household status, which generally provides more tax benefits.
2. Child Tax Benefits and Custody
One of the biggest tax-related considerations in a divorce involving children is who gets to claim the children as dependents. Typically, the custodial parent (the parent with whom the child spends most of their time) will be able to claim the child tax credit. However, you and your ex can agree to alternate this year by year, or even divide up the credits if both of you share custody equally.
It’s crucial to ensure that the tax filings are coordinated to avoid disputes with the IRS about who is claiming which child. A formal agreement in your divorce settlement can help keep things clear, so be sure to address this with your divorce attorney.
3. Spousal Support (Alimony) and Taxes
As for spousal support, due to changes that took effect in 2019, spousal support is no longer tax-deductible for the payer and is not considered taxable income for the recipient under federal tax law, which Nebraska follows. This makes spousal support tax-neutral for both parties in most current divorce cases.
Debt Division: Who Gets What?
There’s also the not-so-glamorous task of figuring out how to split the debt when you get divorced. Just like property, debt must be divided fairly, which can sometimes be challenging, especially if there’s a lot of credit card debt or loans involved.
- The Difference Between Marital and Separate Debt
Nebraska divides debt into two categories: marital debt and separate debt. Marital debt is anything that was incurred during the marriage – like mortgages, car loans, credit card balances, and the like. Separate debt is what you or your spouse had before getting married or accumulated individually during the marriage (for example, student loans).
In a divorce, marital debt is typically divided equally, but it’s not always as easy as just splitting it down the middle. Sometimes one spouse will take on more debt in exchange for more assets, or one spouse may take on a larger portion of debt if they’re staying in the family home.
- Protecting Your Credit After Divorce
Divorce can also affect your credit score, especially if you’re still linked to joint credit accounts. If your ex misses payments on joint accounts after the divorce, it could negatively impact your credit. To avoid this, make sure to close joint accounts or have your name removed from them as part of the divorce settlement.
3. Impact of Debt on Credit
Debt division also affects your credit scores. If your ex-spouse fails to pay their share of the debts you’ve agreed upon in the divorce, it could negatively impact your credit score, even if the debt wasn’t originally yours. To avoid this, consider asking for your name to be removed from joint accounts or negotiating a settlement that protects your credit.
Future Financial Planning: What Comes Next?
Divorce isn’t just about what happens in the moment; it’s about making sure you’re set up for financial success down the road. Financial planning will be important as you transition into your new life, and it can help you avoid financial pitfalls later on. Here’s how to get started:
- Reworking Your Budget
Post-divorce life will likely bring some changes in how you handle money. Suddenly, you’re responsible for everything on a single income, which can be a big adjustment. It’s time to rework your budget to reflect your new financial reality.
Start by listing out your income and expenses, then prioritize your essentials (housing, utilities, groceries, etc.). Remember that saving for retirement or building an emergency fund is just as important now as it was before.
- Retirement Accounts: Don’t Forget About That 401(k)
In a divorce, retirement accounts are often divided as part of the settlement. You may have contributed to a 401(k) or other retirement plan during the marriage, and now it’s time to split those assets. Nebraska requires a Qualified Domestic Relations Order (QDRO) to divide retirement funds without triggering penalties.
Make sure to talk to a financial planner, as well as your divorce attorney, about how the division of your retirement accounts will impact your future. If you’re getting a chunk of your spouse’s retirement savings, you’ll want to make sure it’s properly rolled over into your own account.
- Insurance: Check Your Health and Life Coverage
Once your divorce is final, take a close look at your insurance. You may need to update your health insurance, especially if you were previously on your spouse’s plan. Additionally, if you have life insurance policies, make sure the beneficiaries are updated.
The Importance of Professional Guidance: You Don’t Have to (and Shouldn’t) Figure This Out Alone
You’ve probably realized by now that there’s a lot to manage during and after a divorce – taxes, debts, and future planning. While you might be tempted to try to figure it all out on your own, it’s often worth bringing in some professionals.
- A divorce lawyer can help you navigate the legal side of your divorce to ensure that your financial settlement is fair and in line with Nebraska law, as well as your goals.
- A financial advisor can help you plan for life after divorce, setting you up for long-term financial success.
- A tax expert can help you understand the tax implications of your settlement and ensure that you take advantage of any potential savings.
Your Divorce May Be the End of Your Marriage, But It Can Also Be the Fresh Start You’ve Been Waiting For. Husker Law Is Here to Help You Prepare!
Taxes, debt, and future planning are all part of the divorce equation you’ll need to solve, but with the right planning, you’ll be able to navigate them with confidence. Our dedicated Nebraska divorce attorneys can help build a solid foundation for a bright financial future by working closely with you to address tax challenges, protect you from an unfair portion of marital debt, and clarify your long-term goals.
We’ll keep it real with you and make sure our advice is practical and realistic, because you’re the one that will ultimately feel the impact of your divorce the most. We prioritize amicable resolutions that keep you out of court, keep costs down, and save time, but we won’t hesitate to fight for your interests if things escalate. You can trust our team to stand firm, no matter how things play out.
Ready to talk finances? Whether you’re already deep in the divorce process or just thinking about it, we’re here to help you make smart, informed decisions that will help you thrive. Contact us for a free case evaluation, and let’s figure out the best path forward together!
