The Settlement Looked Fair Until Taxes Got Involved
by Donna S. Cates of Money Matters Wealth Solutions, CDFA® – Certified Divorce Financial Analyst, Wealth Builder & Divorce Financial Strategist
How Tax Blind Spots Quietly Cost Divorcing Women Hundreds of Thousands of Dollars
If there’s one thing tax season has a way of doing, it’s shining a bright light on what we didn’t fully understand about our money.
And in divorce, that light can be downright uncomfortable.
I’ve worked with countless women who felt confident walking away from their divorce settlement until a year or two later, when reality (and the IRS) showed up. On paper, the settlement looked fair. The numbers were equal. The boxes were checked.
But taxes have a way of telling the rest of the story.
Here’s the truth most women aren’t told clearly enough during divorce:
Not all dollars are created equal.
Equal on Paper Doesn’t Always Mean Equal in Real Life
In divorce negotiations, assets are often divided by headline value. A retirement account worth $500,000 may be treated the same as $500,000 in cash or investments.
But financially speaking, they are very different animals.
One client, smart, capable, and deeply involved in her family’s life, agreed to this exact split. It felt reasonable at the time. Her attorney confirmed the numbers were equal, and she didn’t want to drag things out.
Two years later, when she needed to supplement her income, she withdrew funds from her retirement account and was stunned by the tax bill.
“I thought I had half a million dollars,” she told me. “I didn’t realize how much would disappear before it ever reached my bank account.”
That’s the difference between headline value and after-tax value, and it’s a difference that matters.
Retirement accounts are tax-deferred, not tax-free. Every dollar withdrawn in the future may be subject to ordinary income taxes, and possibly penalties, depending on timing and circumstances. Meanwhile, cash or taxable investment accounts often provide immediate liquidity with very different tax treatment.
When taxes aren’t factored in, women may unknowingly agree to a settlement that leaves them with less usable money over time, even if the numbers appeared equal on day one.
And that’s not a small mistake. That’s a life-altering one.
The Quiet Cost of “I’ll Take the House”
Another common scenario I see far too often:
A woman trades retirement assets for the marital home.
Emotionally, this makes sense. The house represents stability, familiarity, and continuity, especially when children are involved. But financially, this decision can come with hidden costs that don’t show up until later.
Homes require:
Ongoing maintenance
Insurance and property taxes
Potential capital gains exposure when sold
Cash flow to support ownership
Retirement accounts, on the other hand, are designed to generate income in later years. Trading future income for a non-liquid asset without understanding the tax and cash-flow implications can leave women house-rich and cash-poor.
And that’s not a comfortable place to land.
Another woman I worked with had her heart set on keeping the marital home. It represented stability for her children and a sense of normalcy after months of upheaval.
To make that happen, she gave up a significant portion of her retirement assets. At the time, the trade felt fair, even noble.
What she hadn’t been shown was the long-term impact.
Within three years, rising property taxes, unexpected repairs, and the cost of maintaining the home on a single income left her financially stretched. She had equity, but no liquidity. The retirement income she had traded away was gone and rebuilding it felt overwhelming.
“I didn’t know I was choosing a lifestyle I couldn’t afford,” she said. “I just wanted to keep life steady for my kids.”
This isn’t about bad decisions. It’s about decisions made without full financial visibility.
Taxes Don’t Care How Hard You Worked for It
One of the hardest conversations I have with clients is helping them understand that the IRS doesn’t consider emotional fairness.
Taxes apply regardless of:
Who earned the money; how long you were married; or how painful the divorce was
Different assets are taxed differently:
Taxable accounts may generate capital gains
Tax-deferred accounts will be taxed as income later
Tax-free accounts, like Roth accounts, follow entirely different rules
When these distinctions aren’t part of the negotiation, women often discover too late that their “fair share” doesn’t stretch nearly as far as they expected.
Another client assumed that because assets were divided equally, taxes would somehow “even out” later.
They didn’t.
She received a larger share of tax-deferred accounts, while her former spouse kept more cash and taxable investments. Years later, she found herself paying ordinary income taxes on withdrawals while he accessed funds with far fewer tax consequences.
“We agreed to split everything evenly,” she said. “I just didn’t know the IRS wasn’t part of that agreement.”
The IRS, as it turns out, is always part of the agreement whether you plan for it or not.
Divorce Is a Financial Restructuring—Not Just a Legal Event
Here’s what I want every woman to understand, especially during tax season:
Divorce isn’t just about dividing what you have.
It’s about determining how you will live.
That means understanding:
After-tax value of assets
Future cash flow, not just today’s balance
How decisions made now affect you 5, 10, even 20 years down the road
This is where working with a Certified Divorce Financial Analyst® can make all the difference. My role isn’t to replace your attorney; it’s to make sure the financial decisions you’re being asked to agree to support the life you’re trying to build next.
Before You Sign Anything, Pause Here
If you’re in the middle of a divorce or even quietly considering one, this is the moment to stop rushing and start asking better questions.
Before you agree to any settlement, make sure you understand:
What each asset is worth after taxes, not just on paper
How your monthly cash flow will work once the dust settles
Whether today’s decisions will support the life you’re trying to build five, ten, or twenty years from now
Divorce may feel urgent, but financial regret lasts far longer than the discomfort of asking for clarity.
Working with a Certified Divorce Financial Analyst® can help you see around corners before decisions are final, before opportunities are lost, and before tax season delivers an unwelcome surprise.
You deserve more than a settlement that looks fair.
You deserve one that protects your future.
If this article raised questions or stirred that quiet voice inside you saying, “I need to understand this better,” listen to it. That voice is wisdom.
Because when it comes to your financial future, clarity isn’t a luxury.
It’s your right.
Disclosures
Money Matters Wealth Solutions is a dba of The Wealth Boutique, a registered investment advisor with the Securities and Exchange Commission. The Wealth Boutique and each of the DBAs are not under common ownership but are owned and operated separately. The Wealth Boutique provides all financial planning and advisory services. All investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to consult with a tax professional before implementing any investment strategy.| Full Disclosure | CRS
This content was generated with AI assistance. While we strive for accuracy, AI may not capture all current laws and market conditions. This information is for informational purposes only and should not be considered personalized financial advice. Always consult a licensed financial advisor for decisions tailored to your unique situation and goals. AI is used to enhance insights, not replace professional guidance.
Estate Gurus, an independent third-party provider, offers Estate Planning Services. The Wealth Boutique may engage third-party service providers to assist with the tax and estate planning portion of the services provided to clients. In addition, The Wealth Boutique may use third-party software to analyze a client’s information to help with the provision of estate planning services. Women's Wealth Boutique is not a law firm, nor are any employees acting in the capacity of an attorney or providing legal advice, as Women’s Wealth Boutique is not a law firm and therefore not permitted to practice law. Fees for third-party estate planning services are in addition to the financial planning fees charged by The Wealth Boutique. They are collected directly by that third party based on the client’s direct relationship with the third-party estate planning vendor.
Donna Cates is a licensed insurance agent. From time to time, she will offer clients advice or products from those activities. Clients should be aware that these services pay a commission and involve a conflict of interest, as commissionable products can conflict with the fiduciary duties of a registered investment adviser. This conflict of interest is addressed through the supervision of insurance recommendations and by not recommending insurance products unless a documented insurance need exists. These products are separate from the investment advisory services provided by The Women’s Wealth Advisor, DBA Money Matters Wealth Solutions
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