Divorce can result in emotional distress and financial havoc for many couples—from the cost of legal fees to the loss of one spouse’s income. When people think of divorce, they tend to imagine losing a great number of assets and possibly even going into financial debt. In some instances, however, divorce can bring unexpected financial benefits.
Here are some of the financial benefits of divorce that you could help make an otherwise painful situation seem a little more bearable:
- Tax benefits
Married couples who file their taxes jointly are sometimes placed in a higher tax bracket, thus paying more taxes due to their combined salaries. A divorce results in ex-spouses filing individually, potentially allowing you to saveup to thousands of dollars on taxes each year.
- Early access to penalty-free retirement funds
A divorce is one of the few instances in which an individual can withdraw money from a retirement account early—without having to pay penalties for the early withdrawal. An early withdrawal from a retirement account is permitted if an agreement referred to as a qualified domestic relations order or QDRO is reached as part of the divorce. The money taken from your retirement account may provide you with additional options to better secure your financial future.
- Social Security benefits for the elderly
Divorced spouses married for at least 10 years may be entitled to obtain Social Security spousal benefits during retirement. Note that only individuals aged 62 by January 1, 2016 may file a restricted application. This entitles you to receive half of your ex-spouse’s benefit, deferring your own benefit in the meantime and allowing it to grow until you reach the age of 70.
- College financial aid for the children
College tuition fees continue to increase, and you may use your divorce to your advantage when it comes to applying for financial aid. The Free Application for Federal Student Aid or FAFSA only requires financial information from the custodial parent as opposed to both parents, which means that the single income may make your child eligible for more financial aid. Remember that any alimony and child support you receive from the non-custodial parent should be included on the FAFSA.
- Opportunity to review your financial priorities
Though many individuals are distressed by lifestyle changes resulting from divorce, others are grateful for the opportunity to reassess their priorities in life. Even if you start your new life with a depleted savings account, think positively and accept the challenge of starting over. Enjoy the fresh financial start and begin to acquire wealth by using your resources wisely.
No one enters a marriage wanting to get divorced. If, however, you and your spouse have determined that divorce is the best course of action to take, it is reassuring to know that there are at least some benefits to the process.