713-333-4430Common Ways a Divorce in Texas Can Change Your Personal Finances
Divorce is undoubtedly one of the most emotionally challenging events a person can experience. However, beyond the emotional toll and turmoil, divorce can profoundly affect your finances. Whether you’re just starting the process or are well on your way, understanding all the ways your Texas divorce can influence your financial situation is critical. Below are some of the most common ways divorce can impact your money and how you can prepare yourself for these changes.
Division of Assets and Debts: Taking a Look at Community Property
One of the first and most significant financial changes that occurs in divorce is the division of assets and the divvying up of debt. Texas is a community property state, which means most assets and accrued debts (from within the marriage) are considered jointly owned. Thus, both of these major elements will be divided between both spouses.
What counts as community property?
Community property includes everything from the family home, cars, bank accounts, retirement accounts, and investments. Then, aside from things you look at as equity and positives come the negatives, such as debt, which is also considered community property. For instance, looming credit card balances to your mortgage are also considered community property.
Separate Property: What Stays Yours?
While most property acquired during your marriage is deemed community property in Texas, some assets might fall under separate property and won’t be subject to the division process. Separate property includes assets owned prior to the marriage, gifts, inheritances, and any settlements from personal injury lawsuits for personal injuries. Proving that an investment is a separate property can be a genuine hurdle and a legally complicated objective. However, once the judge labels the asset as separate property, it cannot be divided. Due to the importance of accurately demonstrating that an asset is separate and the complexities involved, it is advisable to consult with your divorce lawyer.
Will You Pay or Receive Spousal Maintenance?
Alimony, or spousal maintenance, is another significant monetary consideration during your divorce. In Texas, spousal maintenance is not automatically green-lit; it is normally awarded based on the specific circumstances of the case and the needs of one of the parties. The courts will need to review and consider several factors, including the length of the marriage, each spouse’s earning potential or capacity, and, of course, the ability of one spouse to support themselves following the divorce.
How Long Does Spousal Maintenance Last?
The duration of spousal maintenance can vary. For instance, in marriages that lasted ten or more years, spousal maintenance can be awarded for up to a five-year period. However, in the case of a short marriage, or should the spousal maintenance recipient remarry, the payment length could be shortened or ceased respectively. Thus, it’s crucial to ask questions when meeting with your legal counsel and know the details that could affect spousal maintenance.
Child Support: Ongoing Obligations
If you have children, child support is another financial aspect that comes into view. In Texas, child support is not a standard amount across the board; instead, it is determined according to a percentage of the non-custodial parent’s income. The financial commitment is intended to cover the child’s fundamental needs, including housing, food, and education. The amount of child support you might be required to pay (or receive), similar to spousal maintenance, will also likely be determined by several characteristics. Child support is typically a long-term financial duty that can and usually lasts until your kid turns 18 or till they graduate high school–whichever comes later.
Retirement Accounts: A Future Impact
The retirement accounts often reflect a significant portion of a couple’s wealth and are not exempt from division during a divorce process. In Texas, retirement accounts include 401(k)s, 403(b)s, IRAs, and pensions. These accounts are considered community property and thus up for division.
The Qualified Domestic Relations Order (QDRO): To divide a retirement account, you will typically need a Qualified Domestic Relations Order (QDRO). A QDRO is a legal document instructing the plan administrator on how to separate the retirement account. Further, the process can be challenging as mistakes can easily be made and come at a high cost. You want to avoid being hit with unexpected tax penalties. If you have these types of accounts, have a trusted Texas divorce attorney to rely on for guidance.
Taxes: An Overlooked Consequence
Divorce can also have hefty tax implications that many people may miss or forget about. You must educate yourself on these points and be proactive to avoid the consequences. For instance, your filing status will change from married to single or the head of household, which alone can disrupt your current tax bracket and alter the amount of taxes you owe compared to the previous years when you were still married. Additionally, certain deductions and exemptions you claimed in the past, like based on mortgages or dependents, could change and no longer apply.
Another change to your finances that could come with divorce could be capital gains tax consequences. While married partners can exclude up to $500,000 of capital gains on selling a primary residence, single tax filers can only exclude half at $250,000. While these are some common tax-related road bumps that can come with divorce, there are others, depending on the particulars of your divorce. Careful planning and consulting a legal or tax professional is encouraged.
Financial Planning and Budgets Post-Divorce
Finally, one of the biggest transitions you’ll face after a divorce is the need to reassess your budget and financial plans. With your income and expenses shifting and your new life beginning to take shape, it’s paramount to also structure a new budget to go with life post-divorce. For starters, prioritize creating a plan to start and build up an emergency fund. Life after divorce can be unpredictable at times, so having a financial cushion can help you mitigate the unexpected. Of course, most of us want to avoid debt as much as possible, but it’s especially important as you transition to single or the head of the household. Additionally, you will need to revisit your long-term financial goals, and this includes retirement plans and savings strategies; what worked while married may not be best after divorce. Adjusting your expectations can help you emotionally and reach success. Create a new plan where you can still achieve financial goals that are tailored to your own objectives.
Secure Your Financial Future
Divorce is an involved process that affects all pockets of your life, especially your finances–but that doesn’t make it a financial wrecking ball. You need to readjust your outlook and begin planning. By practicing financial literacy, you can anticipate and avoid the potential financial pitfalls of divorce. If you are going through a Texas divorce, schedule a confidential consultation with a seasoned Texas divorce attorney by calling our team of divorce lawyers at 713-333-4430 to safeguard your financial interests and future.
Shannon L. Boudreaux is a passionate advocate for her clients, working on their behalf to help them reshape their lives, their families, and their futures. For two decades, she has helped reunite parents with their children and helped clients negotiate contentious custody disputes. Learn more here.
