The Impact of a Divorce or Separation on Your Financial Life

The Impact of a Divorce or Separation on Your Financial Life

Jun 06, 2018

MoneyLife100We all know that divorce significantly affects your life, and that includes your finances. Divorce is an unfortunate reality for a large number of people: about 800,000 in the United States each year, according to the National Center for Health Statistics. If you’re on the verge of separation or divorce, the Pennsylvania Institute of Certified Public Accountants (PICPA) offers these tips to help you adjust your finances for this major life change. 

Anticipate the Costs

Legal and other fees related to divorce can be expensive, which is why it’s never too early to understand how much you’ll need to cover the costs of a split. If you plan in advance, you’ll be in a better financial situation once the divorce is finalized. It’s also a good idea to gather as much documentation as possible—such as tax returns; bank, investment, and retirement account statements; and loan and credit card information—so you have the details you need to sort out your finances and negotiate any financial concerns. 

Be Aware of a Significant Tax Change

Couples who are separating or divorcing should take into account a major change in the tax treatment of alimony that will apply to divorce or separation instruments executed after Dec. 31, 2018. (There is no change to the federal income tax treatment of payments made or received under divorce agreements executed before 2019.) Under the old federal tax law, the person paying alimony was able to deduct those payments from his or her income, and the person receiving alimony was required to include those payments in his or her income. Under recent tax reform, those rules have changed. For divorce or separation agreements beginning in 2019, the person paying alimony will no longer be able to deduct it, and the recipient will no longer have to include the alimony in his or her taxable income. It’s critical for divorcing couples to consider the impact of this change in their tax and financial planning and to determine the best options available to them regarding the timing of their settlements. 

Revise Your Monthly Budget

Instead of pooling two incomes, after a divorce you’ll be relying on your own earnings. You’ll also be setting up your own financial life, such as opening new checking and savings accounts, and possibly moving into and furnishing a new residence. To keep yourself on track and to form a sound financial foundation amid all these changes, be sure to create a new monthly budget based on your income and expenses as a single person. Within your budget, don’t forget to include payments to savings and retirement accounts to ensure that you have a financial cushion now and a nest egg when you retire. Also, include the effect of any alimony or child support you will be required to pay, as this will significantly impact your new budget.

Build a New Big Picture Plan

Divorce can drive many changes that will influence your finances: getting or changing jobs, downsizing your residence, relocating, or revising retirement or other near- or long-term plans. After you’ve taken some time to adjust to your new life, consider what larger changes may make sense to you. Do you still need the same big house? Do you still have the health care coverage you need? Are you on track for retirement? These are the kinds of issues you should examine as you build a new plan for your future. 

Know Your Emotional Needs

There is a lot to think about when going through a divorce. It can be easy to get so focused on the concrete tasks, like paperwork, that you neglect the emotional aspects. Taking the time to plan out your finances can ultimately help prevent future stress, but it’s also important to make time for yourself. It is not uncommon to consider budgeting for counseling and mental health services, as people often require both immediate and ongoing support to cope with difficult life changes.

Turn to Your Local CPA

No matter what kind of financial issues you’re facing, your CPA can offer the expertise and advice you need. Reach out to him or her for personalized answers to all your financial questions. To find a CPA in your area or for more financial tips, visit


The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest state CPA organization in the United States.

Money & Life Tips are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.