Divorce comes at a high price. You walk away from your marriage with significantly fewer assets and retirement savings by virtue of the property division. You can lose more if you have to pay support or alimony. Then there’s the emotional toll. But there may be a silver lining, some divorce benefits you were not aware of.
As U.S. News and World Report shows, divorce may have a few silver linings, some unknown or hidden benefits to take some of the sting away from an otherwise painful process.
The benefits of a divorce are not enough to make you run out and get one, but there are a few financial benefits that could make a very bad situation seem a little better if you look hard enough.
The end of a marriage can mean the end of fights over money. That is a divorce benefit. There is no more struggle over which categories get priority in the budget; no more evenings spent fighting or pleading with a spouse to rein in spending.
On the other side of divorce is some freedom.
Some people have also found that after a divorce from a spendthrift, you can accumulate big savings, thanks to budgeting on your priorities.
Early Access to Retirement Money
Another benefit is that a divorce is one of the few times you can pull money out of your retirement account early and not pay an early withdrawal penalty.
When the court enters a QDRO (a Qualified Domestic Relations Order) as part of a divorce, it allows for an early withdrawal from the account.
This money may be exempt from the typical penalty assessed, although income tax still needs to be paid if the money is not rolled into an IRA.
Cashing out part of your retirement account can be very risky, but it gives you some benefit to your money you may not otherwise have.
Potentially Better Investment returns
Divorce could mean better investment returns. After a divorce, you have the opportunity to take over your own retirement planning and investments. Being the captain of your own financial ship could be a financial benefit in the long run. I have also written about there being some tax issues in divorce which may benefit you.
More College Financial Aid
Divorce can be difficult for children, but there is one place where they may have a benefit: college financial aid.
The Free Application for Federal Student Aid only requires financial information from the custodial parent rather than both parents.
If you are divorced the FAFSA will consider only the custodial parent’s income.
For financial aid purposes, the custodial parent is the one your student lived with the most in the last 12 months, or the parent who provided the student with the most financial support.
The custodial parent for FAFSA purposes may be different from the parent who has legal custody.
Sometimes you can structure your marital settlement agreement so that the lower-earning parent becomes the custodial parent, giving your student the best chance of qualifying for the most financial aid.
Getting a divorce isn’t something to rush into, but if you find yourself in the midst of a crumbling marriage, don’t despair. You may still come out ahead thanks to these little-known financial benefits of divorce.
The U.S. News and World Report article is here.