5 Ways Divorce Takes Your Money0
Divorce is one of the most stressful things an individual will go through, right up there with moving and death. The thing with divorce is that compared to death and the stress of relocating, divorce stays with you in life. You take it with you when you move. You take it with you til death. And it wears on the pocket book as much is it ways on the emotions.
Samantha Fraelich, a financial advisor with Bernard R. Wolfe & Associates in Chevy Chase, Maryland, said most people don’t realize the toll a divorce can take on their finances.
Got divorced last year? You’ll find out how this ex-spouse is going to stick around forever this tax season.
Here are five ways a divorce impacts your pocketbook today and tomorrow, from Fraelich.
1. Legal Assistance. Attorney and mediator costs will run you in the thousands. Even if you think it will be an amicable divorce. These services are not inexpensive. The average cost of a divorce, including lawyer? Around $30,000. And that doesn’t count income going to ex-spouses post-divorce.
2. Childcare Expenditures. If children are involved, child support will need to be paid by the parent who doesn’t have sole custody of the kids. But for the one who does end up having sole custody of the children, keep in mind that it’s typically more expensive for you, since many costs pop up at the last minute and it’s tough to split everything like that with a former spouse.
“Child support may come into play in a divorce. If one spouse takes sole custody of the children, the other spouse will have to pay child support which is a state mandated amount scaled to pay levels typically. If the couple shares custody, then there may be no child support payments. But it’s tough to say what a man versus a woman pays in a divorce,” Fraelich told Forbes in an email on Tuesday. “It’s really about who is the breadwinner in the family. That is who would be required to pay the other spouse alimony or give more assets up in the split,” she said.
3. Uncle Sam. Tax brackets will change once you go from married filing jointly to head of household. Going from a joint filing status to a single filing status could increase your taxes. Be prepared for this so there are no surprises at tax time. Changes in taxes are now effecting women as much as men. Men are still the main income earner in most American households. But that’s changing.
“There are a lot of very high level professional women that have the same situation (as a man) following a divorce,” says Fraehlich. When it comes to cutting into their income for the IRS and now their ex-husband, the financial stress that comes with that is never ending. “It creates a lot of animosity with the new spouse—no matter man or woman,” she said.
4. Future Planning. Your plan for retirement has probably drastically changed now that you won’t have two people sharing the costs. It is usually helpful to get a retirement plan run by a professional, ensuring it includes the proposed settlement agreement, before you actually sign divorce paperwork. That way, you’ll know whether the numbers will work in the future for you, as well as today.
“Usually retirement accounts are split 50/50 in the divorce, although again the property settlement agreement may allow for more or less than that to go to the other spouse according the splitting of assets,” said Fraehlich.
5. Insurance Needs. Many couples don’t have long-term care insurance since they think their spouse will help take care of them. Once single again, long-term care insurance may need to be considered for those who are unable to self-insure that expense. Also, if you both agree you’d like long-term care, some companies offer “couples discounts” so it may be beneficial to apply and purchase the insurance before you decide to file any legal proceedings.
In tough times like these, divorce is becoming a luxury that many middle-income families — and even some upper-income families — find they can’t afford. Moreover, couples that haven’t managed their finances well when they were together often want to clean up their debt during divorce proceeding. That can be a challenge, forcing couples to slice into massive credit card debt by using retirement savings or even home equity to reduce the burden to a more manageable level if not zero it out all together.
Then there’s the couple whose incomes cannot afford living in two separate houses. When a couple is divorcing and one of them plans to keep the house, that spouse will need to refinance the house to remove the other spouse’s name from the deed and the mortgage. That’s not an easy task for lower income spouses dependent on child support to keep the lights on. Banks might also not see heart to heart as a divorce plays on.