Divorce can be especially difficult for parents still raising children. Your post-separation finances don’t have to be.
About 40% to 50% of married couples in the U.S. divorce, according to the American Psychological Association. While there are many changes when separating from your spouse, managing the finances for your shared children can be particularly intimidating.
However, there are steps you can take to minimize the financial stress.
“When you remove that from the equation, you can actually co-parent really well,” said Tracey Duff, co-founder of Co-Parenting Crew, a community for people facing divorce and shared parenting. “It creates some peace for your child.”
If you’ve separated from your partner, make sure to put your, and your child’s, best financial foot forward with these tips.
Return to the divorce decree
A divorce decree, which makes the termination of a marriage official, usually spells out the co-parents’ designated responsibilities. Certified financial planner Stacy Francis, president and CEO of Francis Financial in New York, said it should be used as the “recipe” for your communication.
“If you had a good lawyer, all the answers you are looking for are spelled out there,” Francis said. “It may really clear up a lot of the potential snafus or miscommunications.”
The decree will often clearly break down the specific cost responsibilities, including health care, education and extra-curricular activities.
More from Personal Finance:
This tax savings strategy for massive IRAs could be on the way out
How young adult can put a small windfall toward retirement
Here’s why advisors may urge retirees to load up on equities
Victoria McCooey, whose contentious divorce from her ex-husband lasted six years in court, said it’s important to fine-tune everything in the document.
Doing so, she said, could have saved her from problems down the road.
“You have to hammer out every detail in your divorce agreement,” said McCooey, who is now a life coach working with women going through divorce. “It wastes a lot of time to have to go back.”
Communication is key
Talking about finances with an ex-partner can be emotional, yet having regular communication and keeping your conversations focused on the children can make it easier.
“Set up a system that works and make sure when you do communicate with them — whether it be over email, phone or text — that the kids are the central issue,” Francis said.
Once you’ve established how you will be communicating about finances, it’s important to do so consistently.
“We typically recommend monthly,” Francis said. “If you have a great relationship with your ex-spouse and you can communicate very easily and healthily, maybe weekly works for you.”
When talking about finances, Francis suggests looking forward by considering how the budget might change in the future due to additional expenses.
When communicating, don’t be afraid to revisit the divorce agreement if it isn’t doing what it should — and get the court involved if necessary.
After finding that her divorce agreement was not working, Natasha Crabb, of Riverview, Florida, decided to change it.
“Our parenting plan was extremely vague, and he never followed it,” said Crabb.
The original agreement called for her ex-husband to pay $631 a month, but it wasn’t directed by the court and he stopped paying in June 2015, she said.
Crabb then went to court to modify the agreement.
Her ex-husband now pays $74 a week and 66% of uncovered medical and dental expenses, which was ordered by the court, she said.
“I wanted everything court-ordered,” Crabb said.
Unsure how to best organize the finances with your co-parent? Francis recommends turning to software.
Some mobile and web solutions aimed at co-parents allow you to communicate directly about expenses, upload receipts and deposit money into bank accounts all on one platform.
“Part of the place where people will argue, or maybe have miscommunication, is about what items they will pay for,” Francis said.
But if you input all the data and both parties can check the platform whenever they like, there’s less room for that, she said.
This also creates a paper trail, which ensures both parents uphold what is in the decree and also keeps lawyers in the loop.
Francis recommends dtour.life, a divorce management platform for spouses and lawyers, and OurFamilyWizard, a web and mobile tool for communication between divorced and separated parents.
File for head of household strategically
Carmen Martinez Banus | E+ | Getty Images
This year saw a major change in tax planning for those getting a divorce.
Child support is neither tax-deductible by the payer nor taxable to the recipient.
Prior to the Tax Cuts and Jobs Act, alimony paid was tax-deductible and alimony received was considered taxable income. However, divorces finalized after Dec. 31, 2018 will no longer be subject to that former tax treatment.
Moving the money is now “invisible in terms of tax treatment,” said Dave Stolz, a CPA and member of the American Institute of CPAs personal financial specialist credential committee.
While it’s no longer possible to do tax planning around alimony, co-parents can get strategic when they file for head of household.
To be eligible as head of household, a parent must have a child who lives with them for more than half a year.
If you have one child, alternate which parent is head of household each year by ensuring the child stays with that person for at least one day past the six-month mark.
If there is more than one child, you can each keep a child for more than six months and both file for head of household each year.
The benefit of filing as head of household as opposed to single? It can be pretty big.
Stolz calculated that someone making $60,000 a year and taking the standard deduction would pay $1,654 less in taxes than filing as a single.
For someone making $160,000 and also claiming the standard deduction, it would be $2,897 less.
This takes planning with your co-parent.
“Hopefully they can have a conversation to say ‘here’s an opportunity for one of us to benefit’ — if there’s one child — and ‘let’s talk about how we can maximize this for the whole household’,” Stolz said.