Divorce can turn your life upside down. First, you have to deal with the emotional side of ending a marriage. Along with that, there is the financial side as well. This can sneak up and hit you even harder if you’re not careful.
For Tennessee residents, there are a few common pitfalls after divorce. Here is a look at tax, debt, and Social Security issues that you should know.
Taxes Can Be the Surprises That You Don’t Want
After a divorce, your taxes will likely be affected. Suddenly, all those deductions, credits, and joint filings you used to take for granted are gone. Unfortunately, that can make a big difference in your wallet.
Once the divorce is final, the tax filing status of “married filing jointly” is no longer an option. If you have a dependent, you might qualify as “Head of Household.” Make sure to have the correct filing status. If you get it wrong, that could mean penalties.
For divorces finalized after December 31, 2018, alimony is not deductible for the payer and is not taxable for the recipient.
Keep in mind that child support is never deductible or taxable. However, custody can affect who gets to claim the child as a dependent for tax credits.
Dividing property can lead to tax angles to watch. In Tennessee, transferring property between ex-spouses as part of the divorce usually does not trigger immediate taxes. However, when the new owner sells it later, capital gains can catch people off guard.
Who Is Responsible for Debts?
Debt is another area where a divorce can surprise you if you are not careful. Tennessee courts can assign responsibility for certain debts, but creditors often do not follow these rules. If your name is on a joint account, you may be on the hook even if the divorce decree says your ex is responsible.
You may want to close or separate any joint credit cards, loans, or utility accounts. If you don’t separate them, you could find your credit damaged by your ex’s spending habits.
Additionally, if you own a home together, the bank can still come after you if payments are not made. Refinancing in your own name can prevent long-term credit damage.
After a divorce, you need to keep an eye on your credit. Missed payments by your ex on shared accounts can ding your credit score. Unfortunately, that can make buying a new car or renting an apartment more difficult.
Know Your Social Security Options
Divorce can affect retirement planning, especially Social Security benefits. However, if you were married for at least 10 years, you may be able to collect benefits based on your ex-spouse’s work record.
You need to be at least 62, unmarried, and meet that 10-year marriage rule. In these cases, you could get up to 50% of your ex’s benefit if that’s higher than what you would get on your own record. Claiming benefits too early can permanently reduce your monthly payments.
What Steps Can You Take to Protect Yourself?
After a divorce, you don’t want to be blindsided by these financial surprises. Here are a few steps to protect your interests:
- Update all your documents: You will want to revise your will, powers of attorney, and beneficiary designations. In Tennessee, life insurance policies, retirement accounts, and other financial documents need to reflect your new status.
- Separate finances: Make sure to open your own bank accounts and credit cards. If you have joint obligations, make sure to close or refinance them.
- Consult professionals: Accountants, financial planners, or a Tennessee divorce lawyer can help you with taxes, debt, and retirement planning without missing anything.
We Are Here for That Next Stage of Your Life
Divorce can create pitfalls for your taxes, debts, and Social Security benefits. You need to stay aware to protect your financial health after a separation. Getting organized, updating your financial documents, and planning can help you navigate this period of transition.
And if you need legal help, Easter & DeVore, Attorneys at Law, is ready to help. We will look at your whole situation to make sure you are not caught off guard. Schedule your consultation with us today.
