Not long ago I wrote an article on the cost of being a single lady. However, divorce can be equally, if not more expensive. Whatever your relationship status, it can have a major impact on your finances.
How much does the average divorce cost?
The average divorce is expensive (anywhere from from $15,000 to $20,000). Some of the costs include “attorney’s fees (which vary by state), court costs (also vary by state), costs for parent education classes, fees for early neutral evaluations and medication costs,” according to this article in the Huffington Post.
It also emphasizes the important role location plays when it comes to divorce.One rule of thumb is to expect to pay at least what you paid for the cost of your wedding. Even if it’s amicable and doesn’t involve costly fees to lawyers, you’re still splitting your net worth.
Beyond the Initial Cost
1. Creating a New Household – One of the first practical elements of divorce is creating a new household. If one spouse doesn’t keep the house, this will include choosing to sell your house or being forced to. There are costs associated with moving and new living expenses to adjust to along with a reduction in income. This is often the case whether or not you are paying or receiving alimony or child support.
2. Division of Assets – When dividing assets it’s important to consider the after-tax value of an account. For instance, the funds in an IRA are taxed differently than the funds in a brokerage account. So, if one spouse took an the IRA worth $100,000 and the other took the brokerage account worth $100,000, that wouldn’t be an even split because the IRA would likely be taxed at a higher rate than the brokerage account.
Also, make sure you have the ability to maintain the assets you keep. The most common example is upkeep of the current house. Additionally, debt is often also split regardless of who accumulated it during the marriage. Paying off debt and reestablishing credit are also important considerations.
3. Creating a New Financial Plan – Find a trusted financial advisor to help you prioritize the numerous financial decisions you are faced with and get back on your feet. Women are often faced with less earning power, which usually is not made up for even with alimony over the course of a lifetime. This article from the FPA Journal discusses the issues specific to these circumstances.
As I mentioned above, we don’t like to think of marriage (or divorce) as a financial decision; however, our relationship status, be it single, married or divorced, has real effects on our personal finances. Consider how your relationship status affects your finances so that you can create a plan that works for you and continue to SaveUp!
This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®.
Image source: Nick Youngson