A divorce or separation can change nearly every part of your financial life at once. You may be dividing property, deciding where to live, adjusting to a new income, and splitting retirement savings. How assets are divided can also affect their future tax consequences. In general, the recipient spouse takes the transferring spouse’s adjusted basis, which is the asset’s tax basis after applicable increases and decreases, such as certain improvements, casualty loss deductions, and reimbursements. This basis is used to determine gain or loss when the asset is later disposed of. Basis does not, by itself, determine the tax owed, which also depends on factors such as proceeds, transaction costs, asset character, exclusions, holding period, and applicable tax rates.
Listed individually, the decisions can sound manageable: keep the house, divide the investment accounts, update the beneficiaries, build a new budget. In practice, each one can affect the others. The home you keep may carry higher ongoing costs. An investment account may have tax consequences that aren’t reflected in its current value. A larger share of retirement savings may provide less immediate cash flow than expected. Coverage that fits a household of two may no longer fit your situation.
For women going through a divorce, looking at these decisions as a connected set, rather than one at a time, can help you build a foundation for the years ahead.
Look Beyond the Dollar Amount When Dividing Assets
A settlement can look balanced on paper while producing very different outcomes.
A home worth $500,000 and an investment account worth $500,000 have the same value today, but they differ in liquidity, or how easily they convert to cash, and in their costs and tax treatment. A home may require property taxes, insurance, maintenance, and a mortgage. Investments may be easier to access but carry market risk.
Tax treatment matters too. The IRS generally does not recognize a gain or loss when property is transferred between spouses or former spouses as part of a divorce. However, the person receiving the asset usually takes on the other spouse’s adjusted basis, which is the original cost figure used to calculate tax when the asset is later sold.
Before agreeing to a division, weigh both the value of each asset and what owning it may mean for your cash flow, taxes, and flexibility.
Rebuild Your Cash Flow Around Your New Reality
Your income and expenses may look very different after a separation.
Start with a realistic picture of what will come in and go out each month. Include housing, utilities, debt payments, childcare, healthcare, insurance, taxes, support payments, and irregular costs that don’t show up in a typical month. The Consumer Financial Protection Bureau suggests logging your actual spending and comparing it against your take-home income when building a working budget.
A temporary budget can help during the transition, with a longer-term plan once the settlement and living arrangements are set. It can also show how much cash to keep accessible while longer-term decisions are pending.
Pay Close Attention to Retirement Accounts
Retirement savings can be one of the largest assets in a divorce, and dividing them takes more than agreeing on a percentage.
Some employer plans require a Qualified Domestic Relations Order (QDRO), a court order that allows part of certain retirement benefits to be assigned to a former spouse. The Department of Labor recommends addressing retirement benefits early, because the type of plan and its rules can affect how benefits are divided.
It’s also worth considering what the settlement means for your retirement timeline and how much you may need to save. And if Social Security may be part of your income, ask how your divorce could affect it. In some circumstances, a divorced spouse may qualify for benefits based on a former spouse’s earnings record.
Review Insurance and Beneficiary Designations
Insurance is easy to overlook during a divorce, yet it can matter more as financial responsibilities shift.
Review health, life, disability, and homeowners or renters coverage. If you’ll lose health coverage through a spouse’s plan, that loss may qualify you for a Special Enrollment Period to obtain new coverage. Also review the beneficiaries on life insurance, retirement accounts, and other accounts. The National Association of Insurance Commissioners recommends updating beneficiaries after major life events such as divorce, so those designations still reflect your wishes.
Bring Your Advisors Into the Same Conversation
Divorce often involves an attorney, financial advisor, tax professional, and insurance professional, each focused on a different piece, even though the decisions overlap. Before finalizing major decisions, consider asking:
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- What are the tax implications of the assets being divided?
- Which assets are liquid, and which are harder or costlier to access?
- How will the settlement affect my retirement goals?
- Do any retirement accounts require a QDRO?
- What insurance coverage do I need now?
- Which beneficiary designations and estate documents should be reviewed?
- What should my cash flow look like in the first year after the divorce?
- Are there Social Security considerations I should understand?
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The goal is to give each professional enough context to see how their piece fits the whole plan.
Build a Plan for What Comes Next
Divorce can change your finances quickly, but your plan doesn’t have to stay defined by the decisions made during the transition. Once the major pieces are clear, you can build around your income, assets, responsibilities, and goals.
If you’re going through a divorce or separation, consider bringing your financial advisor into the conversation early. A coordinated review can help you weigh the trade-offs and spot the decisions that deserve attention before you move forward.
If it would help to talk it through, you can connect with Craft & Sage to begin a broader planning conversation.
