The Negative Financial Effects of Divorce
Marriage is a major life decision that can come with some significant financial benefits, such as favorable tax laws and the ability to share expenses with another person. If personal relationships can break down over time, however, marriage can eventually lead to divorce. Divorce can have negative impacts on the finances of both spouses.
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Division of Assets
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Sharing assets in marriage can amount to a significant source of cost savings, but when a married couple gets divorced, they must divvy up their assets. Couples can divide assets themselves or allow a court to divide assets if they are unable to agree on how to divide them. A division of assets can result in a significant financial burden for both partners. For example, for a couple with one home and one car, the wife might keep the house and the husband might keep the car, leaving each with a void that may require additional spending.
Tax Disadvantages
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Getting married can carry significant tax benefits that are lost when a couple is divorced. For example, married couples who file joint returns are eligible for a standard tax deduction that is twice as large as the deduction for a single taxpayer, and married couples can also face different tax brackets than single taxpayers, both of which can result in tax savings. Divorce can result in paying more income taxes, especially for spouses with high personal income.
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Alimony and Child Support
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For couples where one partner earns the majority of the money, the breadwinner may be required to pay spousal support or alimony to the other spouse. In addition, if a couple has children, the parent who does not get custody of the children may be required to pay child support to the custodial parent. Child support and alimony can amount to tens of thousands of dollars a year, which may make starting and support a new family difficult for the paying spouse.
Income Potential
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Divorce can be especially financially harmful for people who rely on their spouse for financial support during marriage. For example, if one spouse works full time and the other stays at home to care for the kids, the one who stays at home might not have the education, skills or experience to get a job to make up for the absence of the breadwinner's income.
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