One of the reasons couples may hesitate to divorce is due to the cost and financial instability of post-divorce life. When you have substantial assets, you likely do not worry about legal fees and living on your own. However, that does not mean divorce has no significant impact on finances for those in the higher-income bracket.
If you fall for this myth, you may end up paying for it in many noticeable ways. Watch out for these financial consequences of divorce so you can prevent or prepare for them:
Higher child support
Child support payments normally only cover everyday expenses, such as food and housing. However, for wealthier families, the courts may be more flexible in granting additional coverage for the children to maintain their lifestyle. These may include tuition for private school and costs for extracurricular activities.
Divided retirement accounts
Retirement accounts are among the most valuable marital assets. Your ex-spouse has claim to half of your retirement benefits accrued during the marriage. California is a community property state that divides things 50/50, unlike some other states that follow equitable distribution, in which the division is fair but not necessarily equal. How the division of your pension or retirement plan is handled will determine the taxes you may face.
Tax implications
In addition to financial accounts, dividing or separately owning other assets may come with tax penalties. Your filing status will also change, and any spousal and child support payments you receive or make affect your taxes as well.
Changes in credit and debt
Property is not the only thing you share. You are both equally responsible for debt, too. All the financial changes, along with any debt, can temporarily hurt your credit score.
Business obstacles
Do you own a business together, or did you start one during the marriage? Your ex will have claim to this high-worth asset. Even if you owned it before the marriage, any increase in value during the marriage equally belongs to your spouse. You may have to restructure your business to prevent a cut in profits.