Most people can agree that ending a marriage comes with a high emotional cost. Popular culture typically indicates the cost of divorce is equally high both in terms of court costs and loss of a dual income. However, this is often not the case. There are a number of scenarios where it financially benefits at least one of the parties (and sometimes both) to proceed with marital dissolution.
Out of Control Spending
The most obvious situation where it is not “cheaper to keep” an expensive spouse is where the spending habits exceed the potential spousal support one may be obligated to pay in a divorce settlement. This is particularly true if there are no children to the union and a well-considered and enforceable prenuptial agreement in place that limits the financial outlay in a marital dissolution.
Distribution of Retirement Benefits
All retirement benefits that accrue during the course of a marriage legally belong to both marital partners. Prolonging an unhappy union can have a substantial impact on the ultimate distribution of funds intended for the golden years, so cutting things short could save money in the long run. As a side note, early withdrawal penalties do not apply when retirement funds are withdrawn pursuant to a Qualified Domestic Relations Order (QDRO) entered in conjunction with a marital dissolution.
Social Security Benefits
Some individuals may be eligible for Social Security Spousal Benefits at retirement. If a marriage lasts at least ten years and the individual was at least sixty-two (62) years old on January 1, 2016, the individual is eligible to collect spousal benefits while deferring his or her own accrued benefits until age 70. In this scenario, the former spouse against whom the benefits are drawn is not even notified by the Social Security Administration and his or her own benefits are unaffected. This benefit is being phased out and is limited to those with older beneficiaries with established eligibility at the beginning of 2016.
Increased Financial Aid for College-Bound Children
Applications for financial aid only require financial submissions from the custodial parent of college-bound children. While divorce is indisputably hard on children, a possible silver lining exists in the potential for increased financial aid. Although tax returns from the non-custodial parent are typically not required, alimony and spousal support must be listed on the application.
Medicaid Eligibility
When long-term care is necessitated, Medicaid-based benefits will not kick in until personal assets are exhausted. For married individuals, this means all marital assets are in play. Rather than continuing a marriage in name only, choosing to divorce, even later in life, can provide substantial asset protection. The same protections can be achieved with thoughtful estate planning and strategic use of trusts, but legitimate marital dissolution may be prudent when there is a disagreement regarding ultimate beneficiaries to a trust. This is not uncommon with subsequent marriages between spouses having children from prior unions.
While the end of almost every marriage brings a substantial amount of angst and personal grief, there can be a financial upside to divorce in these and a few other situations. Each situation is unique and in order to ascertain the financial impact of a potential marital dissolution, consulting with a qualified family lawyer is strongly recommended.
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