August 2, 2023

Financial Planning Before and After Divorce

Facing divorce can be an unexpected and challenging chapter in anyone’s life, and it’s essential to address not only the emotional aspects but also the practical ones, particularly when it comes to financial planning. In this blog post, we will discuss financial considerations during and after a divorce and share a few tips you should keep in mind throughout the settlement process.

  1. Asset Division-

A fair and equitable asset division is crucial when going through a divorce to ensure both parties receive their fair share of the marital property. To achieve this, transparent communication and cooperation are key if the split happens in an “amicable manner”. If not, your attorney will work with the other party to create a balance sheet at the date of separation.

Start by creating a comprehensive list of all assets, including properties, investments, retirement accounts, and personal belongings, and agree on their current values.

If you work with a financial advisor, engage with them to discuss what makes sense from their perspective. Ultimately, a financial advisor’s job is to clearly understand someone’s (or a couple’s) financial goals, and they should know your balance sheet better than anyone. This can help from a communication standpoint and, most importantly, will help ensure each person understands all financial considerations for each type of asset and the liability.

Lastly, try to settle out of court if possible. Generally, reaching an agreement on your own will save you a considerable amount of time and money and also allows the involved parties more control over the outcome. This can allow you to tailor the settlement to each person’s unique needs and preferences and promotes a more amicable resolution, which is especially crucial when children are involved.

  1. Tax Planning (Filing Single vs Married Filing Joint)-

Filing federal taxes as a single individual vs married filing jointly can have significant implications for those recently divorced. The biggest difference is your ” runway ” within each tax bracket.

The 2023 federal tax tables are included below.


2023 Federal Taxes (Single) 2023 Federal Taxes (Married Filing Joint)
% Rate Income Range % Rate Income Range
10% $0 – $11,000 10% $0 to $22,000
12% $11,000 – $44,725 12% $22,000 to $89,450
22% $44,725 – $95,375 22% $89,451 to $190,750
24% $95,375 – $182,100 24% $190,751 to $364,200
32% $182,100 – $231,250 32% $364,201 to $462,500
35% $231,250 – $578,125 35% $462,501 to $693,750
37% $578,125+ 37% $693,751 +


If you are filing as a single individual, you progress through each tax bracket 2x as fast (at least up to the 35% bracket). For example, the 10% bracket ends at $22,000 of income for joint filers vs $11,000 as a single taxpayer.

This is especially important for individuals who are the “breadwinner” in the family. For example, suppose someone is earning $500k/year and filing a joint tax return. In that case, they can expect their total federal tax liability to be roughly $110k (assuming they take the standard deduction and no other deductions/credits apply). Suppose this same person files a single return for $500k income. In that case, the total federal tax liability is roughly $142k (again, only assuming standard deduction and not factoring in any additional deductions/credits that may apply).

In this example, this is a $32k/year swing, so if this applies to you, it is important to be aware so you can plan accordingly in your budget and cash flow projections moving forward.

  1. Medicare Rates-

If you are going through a divorce later in life, it is also essential to be aware of the impact that it could have on your Medicare premiums (specifically for Part B and Part D).

Like the tax tables above, the amount you will pay for Medicare Part B and Part D will vary based on income and your tax filing status.

The 2023 Medicare tables are included below.


2023 Medicare Part B Premium Rates
You Pay If your 2021 income was:
Part B Premium Part D Surcharge Single Married Couple
$164.90 $0.00 $97,000 or less $194,000 or less
$230.80 $12.20 $97,001 – $123,000 $194,001 – $246,000
$329.70 $31.50 $123,001 – $153,000 $246,001 – $306,000
$428.60 $50.70 $153,001 – $183,000 $306,001 – $366,000
$527.50 $70.00 $183,001 – $500,000 $366,001 – $750,000
$560.50 $76.40 $500,000 + $750,000+


This is relevant if someone withdrawals received a pension or expects to withdraw from qualified accounts. Both of these factors will cause an individual to “show income” for Medicare premiums, which could lead to surcharged premiums.

For example, if you are married and filing a joint return, you have a runway up to $194k to stay in the lowest tier of Part B vs only $97k if filing single.

This change alone could potentially cost thousands over the life of someone’s retirement.

  1. Understanding Alimony and Child Support-

Alimony and child support are two distinct financial arrangements that often arise in divorce or separation. Alimony, also known as spousal support or maintenance, refers to the financial support provided by one spouse to the other, typically after the dissolution of the marriage. Its purpose is to assist the lower-earning or non-earning spouse in maintaining a similar standard of living they enjoyed during the marriage.

On the other hand, child support is a financial provision to ensure the well-being and upbringing of the children involved in the divorce. It is paid by the non-custodial or breadwinning parent to the custodial parent to cover the child’s essential needs, such as education, healthcare, and daily expenses.

While alimony focuses on supporting a spouse, child support specifically benefits the children. The legal considerations, calculation methods, and duration of these financial obligations vary, and it is important to understand the distinctions between the two to ensure fair and appropriate arrangements during and after the divorce process.

In conclusion, navigating the financial aspects of divorce requires careful consideration and planning. From transparent asset division, tax planning implications, and the distinctions between alimony and child support, being well-informed and seeking professional advice can help ensure a fair and stable financial future during this challenging life transition. In general, the alimony and asset splits are not modifiable once the divorce is finalized. It is important to note that child support and custody arrangements are subject to modification in a court system.

As always, it is best practice to consult with a tax and legal professional on these matters.

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