Understanding How Divorce Affects Finances

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The financial effects of a divorce can be significant.

How to Deal with the Financial Impact of a Divorce

One of the most devastating costs of a divorce for many people is the impact it can have on your long-term financial situation. It’s important to understand how divorce can affect your finances.

Your financial health permeates every part of your life. Going through a divorce may force you to have to make some drastic changes to avoid financial ruin. Your credit score may also take a hit in the short-term as your wealth drops. Studies have shown that women tend to suffer a larger negative financial impact from a divorce as they often get custody of the children and have to support their family on less income.

At Sean Lynch in Fort Worth, we know that you may be emotionally volatile during your divorce. We are committed to being a sensitive voice that protects your rights.

How Are Finances Divided In A Divorce?

There are a number of financial issues in a divorce which include dividing family assets, income, debts and retirement savings accumulated during the marriage. These issues can have an impact on your financial situation and standard of living.

Dividing Financial Assets

In Texas, community property includes any property owned or accumulated during the marriage. Community property will be divided in a 50/50 split or in a way that the judge deems equitable. This includes the family home, income earned by each spouse from their job or business, or income from their assets during the marriage even if the assets are in the name of one spouse only. Separate bank accounts will also be split among the couple unless you can prove the money is separate property, so the divorce can affect your finances.

Only separate property will not be divided among the spouses. Separate property includes inheritances, gifts, personal injury damage awards except those awarded for loss of earning capacity, and income or appreciation from any assets owned that occurred before the marriage.

Income from separate property that was accumulated during the marriage can be considered community property. The court will divide it among the divorced spouses.

Dividing Retirement Assets

Divorce can also mean that your retirement accounts like 401(k) accounts and IRAs will be divided. Given that retirement savings can form a significant part of your wealth, divorce can severely affect your finances for the future.

Sometimes the court divides the retirement assets for child support. This is applicable for families where the men or women did not work and have no retirement savings because they were heavily reliant on their spouse’s employment for income. There will be tax implications to consider when withdrawing money from a retirement account.

Divorced men and women may also be able to claim their spouse’s Social Security benefits with a few conditions. Their spouse must be at least 62 years of age and they must have been married for at least 10 years. Often, a married spouse has to wait for their spouse to claim benefits before they can start receiving payments for Social Security benefits. Again, there may be tax implications for receiving these payments.

Dividing Debts

When community property or the separate property of one spouse has been used to finance the debts belonging to another spouse, the court can order the spouse to claim reimbursement from the other spouse.

Another issue to consider is about who will need to be responsible for the debt after divorce. Credit card companies and other creditors can only pursue the people named on the debt to pay the loan. If you and your spouse are both named on the debt, the credit card company or home loan provider can ask you to pay up if your former spouse did not pay on time. This applies even if the divorce decree says that one spouse should pay the debt.

Insurance Considerations

If you relied on your divorced spouse’s health insurance for coverage, COBRA rules allow you to remain on their insurance for up to 36 months after the divorce. However, you will have to pay premiums without any employer contribution which can be a heavy burden financially. Many divorced women and men opt to switch to a new health insurance policy which is more affordable.

Texas law indicates that a divorced spouse cannot claim the life insurance payout of another spouse. There are a few exceptions, such as if the court has ordered it as part of the divorce decree or the divorced spouse was added as a beneficiary after the divorce.

Post-Divorce Obligations

Divorce could create important financial obligations for you like child support and alimony to your divorced spouse.


If the divorce will significantly impact the income of your husband or wife, the court is likely to ask you to pay alimony to your spouse. This often happens if your spouse took care of the children while you worked. The objective is to help your spouse recover financially after the divorce, work their way out of dire straits and build their wealth.

If you get alimony after a divorce, it is often only for a limited period of time. You may need to budget wisely to maximize the alimony you get and find a job to support yourself and your children if you get custody. You may need to be very financially prudent during this time to build up your credit. This will prepare you to become financially independent and recover after the divorce has affected your finances.

Child Support

Child support is a significant impact of divorce for both men and women. Parents often need to manage the costs of child support obligations in addition to custody requirements even as children spend less time with their parents after divorce. You typically pay child support until children reach the age of 18 or graduate from high school, whichever is later. If children are emancipated, the child support obligation ceases.

Texas courts calculate child support based on a percentage of the income of the non-custodial parent. Child support calculations do not consider the income of the custodial parent.

The court will determine the income and benefits received by the non-custodial parent. The parent must pay 20% of their income after tax for one child, 25% for two children, and so on up to a maximum of 50%. The court may require additional child support from parents to cover the healthcare and educational costs of the children.

You can likely get the child support orders altered if the parenting plan has changed, the income of the non-custodial parent has changed significantly, the children’s medical needs have changed or the non-custodial parent is now financially responsible for more children.

In some cases, men and women receive less than the full payment required by child support orders. They may need to turn to public assistance programs to support their children and family as divorce can negatively affect finances.

Protecting What Is Rightfully Yours

It’s easy to overlook critical financial matters during this devastating time. Many people fail to sufficiently prepare and plan for their divorce, do not read the fine print, or make decisions based on emotions or sentimentality. This could be calamitous for them and their families in the months and years following the divorce.

You will almost always benefit from sound, levelheaded legal advice. Our attorneys have years of experience in divorce and family law to help you navigate some common pitfalls, such as:

  • Obtaining a fair property division according to Texas law
  • Deciding if fighting to keep the home is to your advantage
  • Helping you win a fair division of marital debts
  • Fighting for your rights regarding spousal maintenance

Our attorneys can also take time to help you unpack the important consequences of dividing pensions, retirement funds, and other family assets that can have effects on your life, including a small family business that you or your spouse owns. We help you to form a strategic plan that protects your interests and wealth while making the divorce less expensive for you.

Is Finances The Leading Cause Of Divorce?

Finances often rank in the top 5 reasons for divorce. A 2018 Ramsey Solutions survey found that money was the number 1 reason for marital fights. Issues like the lack of communication over money and debt is likely to lead to stress and anxiety among married couples.

Common marital financial issues include:

  • Opposing attitudes towards money
  • Debt on credit cards
  • Mismatched financial priorities
  • Overextending budgets and incurring debt
  • Financial infidelity which can include a secret bank account or debt
  • Impulse buys of big-ticket items without telling the spouse
  • Combining assets or a shared bank account
  • Not compromising on spending habits
  • Unexpected big expenses that one spouse didn’t agree to
  • Spending too much money on the wedding

Is Divorce Considered A Financial Hardship?

The rules of your 401(k) account would determine if divorce is considered a financial hardship, even if the facts remain that divorce has significantly affected your finances. However, if your divorce decree says you have to make payments to your spouse, you are likely to qualify for a hardship withdrawal from your 401(k) to meet an “immediate and heavy financial need”. The condition here is that you do not have any other assets you can draw on or have insurance that can cover your need or divorce obligation. The amount you withdraw should also be sufficient to fulfil the entire divorce obligation.

You will only be able to withdraw from your 401(k) without penalty if there is a Qualified Domestic Relations Order (QDRO) that requires a 401(k) withdrawal. Otherwise, you may have to pay a 10% penalty if you’re under 59.5 years old. You will have to pay income tax on the money withdrawn.

It’s important to take some time to consult your financial planner and consider your options. A financial planner will commonly advise you against withdrawing tax deferred money. However, they can help you come up with a plan to make the option less costly for you.

Start With A No-Cost Case Review

Sean Lynch knows you are concerned about your financial situation in your new post-divorce circumstances, and our fixed cost fees are based on the services we provide. We do not charge you by the hour or bill you if you call us with a question.

Contact us through email or call our offices at 817-668-5879. There is no charge for your first 30-minute consultation.

Our Reviews

Sean Lynch Family Law

City Center II, 301 Commerce Street Suite 2900, Fort Worth

3.9 72 reviews

  • lauradoesstuff andmore ★★★★★ 6 months ago
    Hired Mr. Lynch to represent me in a divorce case. He handled it professionally and answered every question I had during the whole process quickly. He got the court to agree with what I wanted and I am now divorced. Would recommend him … read more to friends and family.
  • Catherine Jones ★★★★★ 3 months ago
    Sean was extraordinary, patient and helpful throughout my lengthy and tedious divorce process. He provided a balance of supportive advocacy and pragmatism in his advice, and helped ensure the outcome was to everyone's benefit. I hope … read more to never need a family law attorney again, but if I do, he'll be the one I call.
  • Hawkeye Roofing & Restoration ★★★★★ 9 months ago
    Sean did a really great job in getting my divorce done. He does care about dads! It would have went a lot smoother if it wasn’t for the other party being difficult but overall I’m extremely happy and would highly recommend.

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