All the Ways Divorce Can Negatively Affect Your Finances

In fact, many marriages last for decades—contrary to popular belief, the divorce rate in the US has been steadily declining for decades , and the old belief is that about half of all marriages that end in divorce are bullshit—although for people over 50, the divorce rate has actually doubled . over these years. And that’s important because older people tend to have more money after decades of work, savings, and their own home, which means they have a lot to lose.

In addition to affecting your mental and emotional well-being, divorce can also be what scientists call a financial disaster . How financially disastrous? In some cases , living standards can drop by double-digit percentage points , and there is a non-zero chance of living in poverty as a result of a divorce. If your marriage is getting rocky and you start to wonder if it will end up in the courtroom, now is the time to think about the financial implications of divorce because there are many.

Direct costs of divorce

The first thing to consider when considering divorce is its literal cost. It almost entirely depends on how combat-ready he is. An amicable divorce, where both parties sit down and decide how to split things up, can cost as little as $200 , or several thousand if you get professional advice but keep the relationship amicable.

But if you can’t agree on anything and you need to involve lawyers, your costs skyrocket. The average cost of a contested divorce ranges from $15,000 to $20,000. This can get even more expensive if you have significant assets or if there are other issues that make your partition difficult. So, the first thing you need to do if you are planning to divorce your spouse is to make sure that you can afford these bills.

In addition to attorney fees, there can also be a long list of additional fees that need to be covered in a divorce, including:

• Accountants or financial planners
• Real estate specialists
• Picks
• Therapists (for you and any children involved)
• movers

Soft costs of divorce

In addition to the things that come with an invoice and the exact number that needs to be paid, a divorce can result in a number of less well-defined costs. For example, when it comes to assets, it’s easy to fall into the “hot sale” mentality because you want to split them up as quickly as possible. As a result, you may sell a common property for less than its actual market value due to the emotional urge to end the whole process.

There is also the issue of assets that do not have a fixed value. For example, suppose there is a house owned by both spouses that is valued at $250,000, and there is a joint IRA or other account with a current value of $250,000. That each spouse receives one of these assets may seem fair at the moment, but it is impossible to predict how much these assets will be worth, say, 10 years from now. If the housing market in your area is falling and the stock market is rising, someone will regret this deal.

But separating those assets comes with its own headaches.

taxes

Something that many people don’t anticipate during a divorce is the tax implications. These range from the mundane – you will need to consult with a specialist to get advice on what your new filing status should be (single or head of household) and if you are employed, you may need to look into your withholdings and get clarity on your new tax scale. And keep in mind that if you receive spousal support (or alimony), it counts as taxable income . If you pay child support, it is not taxed.

If you choose to split your retirement accounts, this can be a problem. For 401(k) plans, simply writing a check can result in a Jupiter-sized tax bill, so you’re better off getting a Qualified Domestic Relations Order (QDRO) to transfer money without being tax-killed. You don’t need to get a QDRO to split an IRA , but you do need to be careful when transferring funds – again, you can’t just write a check if you don’t like paying taxes and penalties.

Life style

Divorce changes your entire financial scene. If you did not work as a spouse, your income may suddenly drop dramatically even if you have received a spousal support order. You will need to quickly determine if you can survive on your new income or if you will need to develop other sources of income.

Even if your income is equal to your ex-partner’s income, you still expect a shock because you will be maintaining a 100% lifestyle on 50% income. More specifically, you can maintain a lifestyle of 110% (or more) because you will have increased expenses such as childcare, health insurance (if you were previously on your spouse’s insurance), and replacing all the things you didn’t take. . with you during a divorce – imagine that you need to not only buy a new house, but also furnish it with furniture .

Retirement

Divorce is a net worth destroyer: Divorce usually leaves you about 30% poorer than you were when you were married. And this financial hit can have a negative impact on both your future and your present: after a divorce, you are at a much higher risk of running out of retirement savings. The cumulative impact of all those bills and expenses, the need to replace assets (like a home) you already had, and the potential drop in income all make your retirement plans a lot bleaker than before.

All you can do is evaluate your new situation and make a plan with a financial advisor. If divorce is imminent, it’s time to start planning for a revised retirement right now.

Duty

If you have had joint accounts with your spouse, especially credit card accounts, you may be liable for the debts they accumulate, even if you have nothing to do with the expenses. There is a simple rule of thumb: if your name is on the loan agreement , assume that you can be held responsible for the entire debt, regardless of who actually pulled the trigger. This also applies to bank loans, mortgages and car loans. It is very important to get a clear picture of all the debts accumulated during the marriage and to know who is ultimately responsible for them.

Alimony and Alimony

Finally, if there are children, alimony may be paid, and if there is a significant difference in income levels, there may also be a spousal alimony order. Support levels vary greatly depending on the state you live in , and both child support and spousal support will vary depending on other factors such as your income level after divorce and how property is divided. But if you can end up paying or relying on these payments, you need to consider how they will affect your overall financial situation.