The financial implications of divorce: Five things to consider 

Five things to consider before filing for divorce

1. You don’t need to show fault to file for divorce.
Every state in the US allows ‘no-fault’ divorces. This means that the spouse filing for divorce does not have to show any fault on the part of their partner; they can simply cite “irreconcilable differences” as the reason for divorce. Bear in mind that financial misconduct (such as hiding assets or spending marital funds on an affair) can still impact how property and alimony are divided in some states.

2. Where you live can impact the financial outcome of the process.
Nine states have ‘community property’ laws, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, most property acquired during the marriage is considered the joint property of both spouses (including debts). In equitable distribution states, the court decides an appropriate distribution of property between each spouse, which does not always mean a 50/50 split.

3. Tax changes have eliminated alimony deductions.
Historically, spouses paying alimony could deduct it from their taxes. However, federal tax rules made effective in 2019 eliminated this deduction, while also dropping the requirement for the recipient to pay income taxes on alimony. Most states have now adopted the new alimony rules (including California as of 2026), but a few still operate under the old system for state taxes.

4. Divorce can impact your IRA contributions.
The IRS legally considers your marital status on December 31st as your marital status for the entire calendar year. That can have an important impact on the deductibility of IRA contributions. 

Suppose that you contribute to a spouse’s Traditional IRA, only to finalize your divorce before the end of the year. If that occurs, you will not be able to deduct the original contribution on your tax return. The same rule applies to spousal HSA contributions

5. Specific divorce rules apply to taxes on home sales.
Generally speaking, the IRS allows up to a $250,000 exclusion from capital gains tax paid per individual on the sale of a residential home. To benefit from that exclusion, the seller must occupy the home for at least two of the five years leading up to the sale. 

There is an exception, however, in the case of a divorce agreement that entitles one spouse to live in a jointly owned house. In this case, the nonresident spouse is still entitled to count the resident spouse’s time in the home as their own assuming certain other requirements are met. This rule ensures that both parties can still benefit from the exclusion if the house is sold.

How to Prepare for Divorce

No matter how amicable the process, divorce is a major life change. Like any transition, divorce is easier to navigate with planning and preparation. If you’ve decided that filing for divorce is your best course of action, there are three specific ways in which you can prepare: reviewing your finances, finding an attorney, and organizing your documents.

Reviewing Your Finances

Reviewing your finances starts with understanding what it will take to maintain your lifestyle as a single individual. Divorce can mean the loss of another income source, the division of assets, or the implementation of new obligations. That’s why it’s important to get a sense of how much you currently need and how that figure might change once you’re on your own.

Next, take inventory of every significant asset that you own, including real estate, personal property, life insurance policies, investments, and stock option plans. Documenting every asset is essential, as each one can impact what you receive in the divorce and how comfortable your life is afterward. It’s also helpful to quantify liabilities, such as your mortgage balance or any credit card debt.

Finding an Attorney

Finding the right family law attorney for your situation is essential. While searching can require some work, picking an attorney is one of the most important decisions you’ll make in the process. Take time to identify what’s most important to you, and formulate the questions you need answered before walking into a law office.

We strongly recommend interviewing more than one attorney before making a decision. Asking for referrals from people you trust and respect can be an effective way to find potential candidates. Divorce can be a long process, so it’s important to find an attorney who shares your values and understands your goals. And while a good attorney comes at a price, navigating divorce alone can be much costlier.

Organizing Your Documents

Staying organized can make the divorce process less stressful to navigate, especially as documentation requests pile up from your attorney, the court, and your ex-spouse. Organize the necessary information in a presentable form, ensuring that all documents are easily findable.

This checklist can serve as a practical guide to collecting the documents and information that you’ll need – ideally prior to meeting with your divorce attorney. Being organized can also be economical, allowing your attorney to focus on the big picture, rather than spending their time fishing for documents.

Surviving Divorce: The Road Ahead

Divorce is rarely a simple or easy process. But it’s one that many individuals endure, often coming out the other side with a more fulfilled and balanced life. In the meantime, navigating divorce can be made easier by carefully considering your options, staying organized, and assembling a team that shares your values. 

In the words of family-law attorney Laura Wasser, once you start the process of divorce, there are three things to keep in mind: “Be kind, be reasonable, be brief.” Although divorce is inherently emotional, mutual understanding and thoughtful decisions can help turn a difficult ending into a healthy start.

 ^[1] Divorce in Decline: About 40% of Today’s Marriages Will End in Divorce, Institute for Family Studies Link