Few life events are as emotionally and financially disruptive as divorce. Once the process of dividing assets is complete, you’re often left with a very different financial reality. This can feel overwhelming, but with the right strategies, it’s possible to rebuild stability. 

Proactive financial planning after divorce can help you manage immediate needs and lays the foundation for a more secure future. This guide offers actionable tips to help you navigate the complexities of divorce and finances and explores how Gainbridge annuities can fit into your plan. 

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Retirement planning after divorce: 4 tips to stay on track

Divorce can derail even the most carefully crafted retirement plan, requiring a complete overhaul of your strategy. Here are the key areas to focus on when financially preparing for a divorce.

1. Split retirement assets via QDROs

One of the most complex aspects of a divorce is dividing assets, especially retirement accounts. A Qualified Domestic Relations Order (QDRO) is a legal tool that allows 401(k)s and pensions to be split between spouses without triggering early withdrawal penalties or immediate tax consequences. 

2. Maximize retirement savings 

Life after divorce often means adjusting to a reduced income, which can make rebuilding your retirement savings a challenge. Start by assessing your financial situation, including all income sources, expenses, and current savings. Then, build a budget that reflects your circumstances and identify areas where you can cut costs or reallocate funds towards retirement. When possible, maximize your contributions to tax-advantaged accounts, such as IRAs, as well as employer-sponsored plans like 401(k)s. Small, consistent contributions can make a meaningful difference over time. 

3. Consider annuities for income stability

Replacing lost income, such as a spouse’s pension or shared retirement benefits, is a key goal. Annuities, particularly fixed annuities, can play a valuable role here, providing predictable interest growth that can create a reliable income stream. 

4. Understand Social Security benefits

If you were married for at least 10 years and are currently unmarried, you may be eligible for Social Security benefits based on your ex-spouse’s earnings, even if they remarry. This won’t affect their payout and can significantly boost your retirement income. Check with the Social Security Administration to understand your eligibility and determine the best time to claim benefits based on your age and income needs.

Financial settlement after divorce: What to expect and how to manage it

A divorce financial settlement requires careful decisions about dividing assets, handling debts, and planning for ongoing support. Understanding what to expect and how to plan for divorce can simplify the process and position you for greater financial stability going forward. Here are three components of a typical divorce settlement. 

Asset division

Dividing marital assets, such as real estate, investment accounts, and personal property, is often the most contentious part of a divorce settlement. In community property states, assets acquired during the marriage are split 50/50. In equitable distribution states, courts aim for a fair, but not always equal, division based on factors like length of the marriage, earning capacity, and contributions made by each spouse. 

Spousal and child support

Spousal support and child support intend to ensure financial continuity for the lower-earning spouse and any children involved. 

• Spousal support may be temporary or long-term, depending on the duration of the marriage and the difference in income or earning potential between spouses. 
• Child support is typically paid by the non-custodial parent and is based on factors such as income levels, custody arrangements, and the specific needs of the children. 

Retirement plan allocations

As mentioned above, QDROs facilitate the division of retirement accounts like 401(k)s and pensions. This legal document allows applicable amounts to be directly transferred to the other spouse, who can then roll it into their own retirement account.

How to create a realistic post-divorce budget

Building a sustainable budget is a practical step that lets you take control of your finances post-divorce. A single-income household demands a new approach to spending and saving, and this budget can serve as your roadmap to stability. Here’s how to get started.

Separate fixed and variable expenses

List all your expenses and categorize them as either fixed (such as rent, loan payments, and insurance) or variable (expenses like dining out, entertainment, and transportation). Having a clear overview allows you to understand your baseline costs and identify areas where you can cut back.

Plan for one-off expenses

Looking beyond your regular expenses, you’ll want to set aside funds to account for one-off or occasional expenses. These can include car maintenance, holiday spending, or home repairs. Accounting for these helps you avoid dipping into your savings or relying on credit when they arise. 

Using budgeting apps or spreadsheets

Whether you prefer digital apps or a simple spreadsheet, choose a tool that lets you track income and spending to stay organized. Visualization techniques like these can make it easier to spot trends and opportunities for savings. 

Building in retirement savings and an emergency fund

Make room in your budget for both retirement savings and an emergency fund. Even starting with a small contribution, like $50 per month, can build momentum. Aim to grow your emergency fund to cover three to six months of essential expenses and continue contributing regularly to retirement accounts to build wealth for the future. 

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Tax considerations after divorce

Divorce can have a significant impact on your tax situation, so it’s important to be aware of the potential implications:

• One of the most immediate changes is your filing status. After divorce, you’ll typically file as single or as head of household (if you qualify). This can affect your tax bracket, deduction, and overall liability. 
• For divorces finalized after 2018, alimony is not considered taxable income for the recipient and is not deductible by the payer. Child support is also non-taxable and non-deductible for the payer. 
• You may lose access to certain shared deductions, such as those related to mortgage interest if the marital home is sold or transferred. 
• If you have custody of your children, you may be eligible for tax credits such as the Child Tax Credit or Earned Income Tax Credit. 

Given the complexity of post-divorce planning, it’s wise to consult a tax professional. They can help you adjust withholdings and understand new obligations and opportunities. 

Rebuild financial security with Gainbridge

Divorce may change your financial path, but it doesn’t have to derail your future. Annuities can be a vital part of your plan, offering a way to rebuild wealth and create reliable income for retirement. Gainbridge’s platform makes planning for retirement straightforward, with transparent terms and no hidden fees. 

To explore your options, explore Gainbridge today. 

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This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes.