If you’re considering a divorce, it might not be for fiscal reasons, but a dissolution of your marriage will greatly impact you and your ex-spouse’s finances. Divorce isn’t cheap, and it will have lasting effects on your bank account long after the ink dries.
Even before you finalize the separation, you’re going to incur high bills, particularly involving legal fees. As Craig Guillot of Intuit’s MintLife blog points out, each partner usually has their own legal team, and the more time is spent fighting over child custody, alimony and assets, the more expensive the process can become — easily exceeding $100,000. If you foresee an ugly, costly battle on the horizon, he recommends consulting with a Certified Divorce Financial Analyst beforehand to make a cost-efficient plan.
Property and assets
What you and your spouse used to share now will be divided, and the two of you likely won’t agree on where those lines should be drawn. Property distribution is decided upon by the laws and court of your state, so you may either be subject to community property procedures (generally equal division) or equitable distribution procedures (court-decided), according to Deborah Fowles of The Balance.
Property is easy to define, but your assets can be a wide variety of things. While the obvious ones are the house, cars, recreational vehicles, financial accounts and investments, Fowles points out that artwork, antiques, collectibles, tools, rewards program bonuses, vacation time and many other things could be considered assets, depending on how much they’re worth.
Have a clear list of your assets and ranking of what you prefer to keep, because you may have to relinquish some assets to keep others. The bottom line is that you should expect your property and possessions to take a heavy hit in a divorce.
Child support and alimony
Depending on how the divorce goes, either you may need to pay your spouse money on a regular basis or they will have to pay you. Whether the judge prescribes child support and/or spousal support, the amount of money being paid can depend heavily on the formulas dictated by your state’s laws and what the judge deems to be fair. So, it’s hard to predict what the bottom line will be.
If you’re unsure if spousal or child support will be part of the divorce outcome, Guillot recommends factoring in how long the marriage was, the employment situation of both spouses, the number and ages of any children, the nature of the divorce and other such influences. If you’re in a better financial situation than your ex-spouse, be prepared to give up a chunk of your income in the coming years.
Taxes are already a mess to understand, and divorce can complicate them even further. You will go from filing your taxes jointly to filing them single at a higher rate, and only one of the parents will be able to claim your children as dependents. According to Forbes contributor James Brewer, if you receive spousal support, you will need to pay tax on that income, but child support doesn’t get taxed.
Debt and credit
Just like splitting assets, you’ll be splitting debt, too. Experts with Financial Engines warn that even debt solely under your ex-spouse’s name could have an impact on you if they don’t pay up. This could involve outstanding automotive loans, student loans, business loans, credit card debt or mortgage balances. Outstanding debt may even impact your credit score after the divorce, so monitor it carefully for issues.
Although the majority of ways a divorce impacts your finances are negative, there are some benefits to becoming single again. You’ll have control over your budget, so you can free yourself from unhealthy or inessential spending habits. U.S. News & World Report contributor Maryalene LaPonsie points out other potential benefits of divorce, like more government financial aid for retirees and parents of college students.
If you are considering divorce, evaluate the financial impact of the separation before filing. It will probably cost you more than you expect, and will have lasting effects on your wallet for years to come. Talk with a financial advisor — particularly one that specializes in divorces — to determine the least-costly path of separation.