A post-divorce settlement budget. Let’s face it, money is usually the one thing most people worry about when getting divorced. Gathering all of your financial information is a key first step. This will help you determine your assets and liabilities. Next, create a budget; this is vital when going through a divorce. Each spouse needs to determine debts that will need to be paid, whether the house will be kept or if it will need to be sold and the proceeds divided. Often, individuals overlook budgeting for future needs, and goals such as a new car or vacations.
If you have children, you will want to think about how to take care of college. Will you each save a certain amount? Will one spouse take care of the tuition? Or will your children be on their own to obtain financial aid? Other future events, such as weddings, will need to be discussed and put into your budget.
Alimony. In many cases when couples divorce, alimony is paid by one spouse to the other, and this could be in addition to child support. Child support is not taxable to the person receiving it, but that also means it is not tax-deductible by the payer.
The opposite is true for alimony. Individuals who pay alimony can deduct that amount on their tax return, and the person receiving it must report that amount as income for tax purposes. For some, alimony and child support may be the only income they are receiving, and they may not feel they have the opportunity to save for retirement. This may not be the case.
Monies received from alimony are considered income, so an individual can contribute up to $5,500 per year for 2017 or the amount of alimony received per year, whichever is less. If you are over age 50, the contribution limit amount is $6,500 per year.
Most individuals are not aware that they can make these contributions, and depending on your tax situation, you may be able to deduct your contribution to your traditional IRA. Consult a tax advisor to see if you are eligible.