Divorce impacts almost all areas of life, and one of the most challenging areas to rebuild is finances. New expenses, a single income, and somewhat complicated decisions regarding property, debt, and savings, can be extremely overwhelming. The upside is that with a plan, along with knowing what is asset or debt for you, you can take control and work towards achieving a solid financial future.
Texas is a community property state, meaning most assets/debts that were acquired during marriage, are deemed jointly owned. Once you have moved through the divorce process, it is important to know exactly what has been divided and how to proceed wisely forward. Part of that plan includes updating accounts, starting a new budget, and thinking through the approach that will look like towards long-term savings and planning, retirement, and rebuilding credit.
Research from the National Bureau of Economic Research (Income Declines after Divorce | NBER) found that family income typically drops by 40 to 45 percent after divorce, which shows just how much financial adjustment many people face during this transition. It is a major challenge, but with the right information and professional support, financial recovery is absolutely possible.. It happens frequently, but with the right information and support from a professional, it is manageable.
This blog will provide practical steps about money management post-divorce, including budgeting, rebuilding credit, any tax implications, and planning for the future.
For specific questions about property division, debt responsibility, or your financial rights after divorce, contact Jean Brown Law in San Antonio for personalized legal guidance tailored to your situation.
Understanding Your New Financial Picture
After getting divorced you should first verify your financial situation. The income, expenses and assets you have may have changed, and taking the time to make a clear picture will allow you to make better decisions in the future.
You should start with a quick note listing what is your income, your liabilities, and what is your monthly spending. This income and liabilities list should include your rent/mortgage, utilities, groceries, insurances, and possible support you are giving. Again, having it all in a single list should help clarify where things need to be adjusted.
In Texas, because of community property laws, in general, most assets and debts acquired during marriage are considered equal between spouses. Once your assets and debts are divided, you should check all your accounts to ensure your name is only on the accounts of which you now own. You don’t want to be surprised later to find a shared account credit card legally binding you on a credit card owned by your ex-spouse.
A clear understanding of your financial situation will give you a foundation on your new budget and long-term plans. Understanding what you have and what you owe will allow you to transition from confusion to control.
Rebuilding Your Credit
To begin restoring your credit, you should first check credit reports from all three credit reporting agencies: Experian (https://www.experian.com), Equifax (https://www.equifax.com), and TransUnion (https://www.transunion.com). Each year, you can check one free report from each of the three agencies using AnnualCreditReport.com (https://www.annualcreditreport.com/index.action). Examine these reports closely for any mistakes and inaccuracies. Make sure the account status of all joint accounts and debts from joint accounts were reported accurately, and to make sure that account(s) you no longer use are not open in both names.
If your credit score has dropped after your divorce, small acts can put you on a path to rebuilding your credit. For example, using a secured credit card, maintain low balances, and pay monthly on time, all may provide benefit. However, be cautious of applying for too many accounts at once. Applying for multiple accounts in a short time frame can quickly decrease your score, at least temporarily.
In Texas, obligations that are acquired during the time you were married are typically considered community obligations, meaning creditors can hold both parties accountable for debts acquired while married, even after divorce, as long as the relationship between your name and the account remains. Therefore, if your spouse agrees to pay debts to creditors as part of the divorce settlement, be sure to visit the lender or creditor to remove your name from the account or bills.
Rebuilding credit after divorce is not quick, but it is possible. With consistency and careful financial habits, your score will begin to rise again, giving you more financial freedom and peace of mind.
The information in this section is for general purposes only. If you have specific questions about how to rebuild your credit or manage debt after divorce, contact Jean Brown Law in San Antonio for guidance tailored to your situation.
Tax consequences of divorce
Taxes may look different after a divorce, and being aware of these changes can help you avoid surprises. Your filing status, dependents, and deductions may all be affected once the divorce is finalized.
If a divorce is finalized by December 31, the IRS generally considers you unmarried for that tax year. Only one parent can claim a child as a dependent, and the divorce decree or settlement usually specifies which parent is designated to do so. The IRS typically follows what is outlined in the agreement.
Spousal support, also called alimony, is no longer tax deductible or taxable for divorces finalized after 2018. Child support is not deductible by the payer and is not taxable to the recipient. Understanding these differences can make budgeting easier and help you know what to expect when you speak with a tax professional.
Many people choose to review their W-4 after a divorce because income and household changes can affect how much tax is withheld. A tax professional can help determine whether any adjustments are appropriate in your situation.
If property, retirement accounts, or business assets were part of the divorce, taxes can become more complicated. A qualified tax professional can help make sure everything is reported correctly.
On a Positive Note: Developing Financial Confidence
Starting over financially after a divorce might feel overwhelming, but it is completely achievable to do! The important thing is to take it slow and steady. Assess your finances, repair your credit, and stick to your budget. As you move forward, the small things you are doing will build gradually into certainty and confidence.
Keep in mind, it will get better, and financial recovery is not a race. Everyone’s recovery looks different based on income, debts, and family dynamics. If you try and achieve perfection, it will only create additional stress. Focus on change!
This information is for general educational purposes only. For personalized legal questions about how divorce may affect your taxes, contact a tax professional.