Divorce is expensive, no doubt about it. Perhaps the biggest cost of divorce is its devastating emotional effect on the family. You are left angry and grieving for the life and relationship you lost and the kids are left hurting emotionally as well.
However, equally damaging is divorce’s effect on finances. Depending on your particular circumstances, you may find yourself saddled with substantial debt after leaving the marriage.
Where there were possibly 2 incomes supporting 1 household pre-divorce, you may have to live permanently with a single income if your ex-spouse will not or cannot pay support.
How do you prepare for the financial impacts of divorce? The best way is by knowing what income you have and what expenses you are facing now and after separation.
Here are the top 3 divorce expenses you have to prepare for:
Number 1 - Divorce Litigation Expenses
Did you know that the filing fee for divorce in California is $300 to $500, depending upon what county you file in? However, the cost of the litigation itself is another story.
An average divorce in California, when hiring divorce attorneys, costs around $17,500 to $38,000. The final costs depend on the circumstances. It turns difficult when the two parties fail to cooperate with each other to find the best solution.
Here is an important thing to remember, though. California is a no-fault state that makes it easy to get a divorce. A couple’s property is considered a “total estate”. The total value of the estate is reduced as the divorce proceeding is dragged on by one spouse making it difficult for the other party. For a better financial outcome, cooperation is key.
What drives the cost of divorce “through the roof”?
The Cost Of Dividing The Assets.
Dividing assets you’ve accumulated during the marriage is an expense that comes with divorce, regardless of whether or not it’s contested.
Take for instance these scenarios:
Selling the house. Even if you get to keep the house, you still need to buy out your spouse’s share. Essentially, you are paying your spouse for his half of the equity in the house.
Dividing property. You will also need to divide all your personal property between you and your spouse. This can translate to an added expense. For instance, if you’re talking about furniture, you may have to buy replacements to re-furnish your home and resume a semblance of normalcy.
Stocks. When they count as part of marital property, stocks must be divided equally, according to California community property laws. And this can greatly diminish the value of your portfolio.
Investment Accounts and retirement accounts. Investments and retirement accounts that qualify as part of marital property are likewise divided equally.
Depending on the situation, you may need to give a portion of your account to your spouse or you may have to shell out money or assets of equivalent value to “buy out” their share of these accounts.
When the situation is truly acrimonious and the divorce is contested, expect to pay a lot for attorney’s fees. Typically, lawyers bill on an hourly basis. In California, this is $330 per hour on average, but can go higher!
If the divorce drags, you can imagine how this can drive up your expenses. Therefore, a faster divorce equals less cost.
But here’s some good news - you have alternatives to litigation. Mediation is an option that can minimize legal fees while maintaining more control over what happens to your property, your children and your life, pre and post-divorce.
Another positive is that mediation is voluntary and confidential. With mediation, you may save as much as 80% of your divorce legal expenses.
Here’s interesting data - national statistics show that over 85% of all mediation end in a resolution. Of this figure, almost 100% are satisfied with the resulting agreement.
Number 2 - Child Care Expenses
Divorce has the biggest impact on children. And for those who have children, divorce expenses during and after the process can be burdensome.
If you’re a custodial parent and are awarded child support, this may not always be an assurance that your ex-spouse will comply. And you may find yourself having to solely shoulder the expenses of caring for the kids and providing for their daily needs.
On the flip side, if you’re not the primary custodial parent, child support payments can be a big drain on your budget. This becomes more distressing when you find yourself possibly supporting your ex’s lifestyle instead of having the money actually used for your child’s or children’s expenses.
If you have been a stay-at-home mom during the marriage, circumstances may force you back into the workforce. If your children are young enough, you will have to think of daycare. Depending on where you live and the age of your child or children, this can cost hundreds of dollars a month. The cost of shuttling your child between the two of you is also something you must contend with.
Number 3 - Health Care Insurance
In a survey done on divorcing and divorced women, one of the unpleasant surprises that they encounter during the divorce proceedings is the staggering cost of health insurance.
During the marriage, your spouse may have maintained the medical insurance for the entire family. This may be because you did not work, or your work did not provide health insurance benefits.
Regardless of the reason, the issue of health insurance is an important matter to consider during divorce. Having adequate coverage is important, especially for your children. In this case, health care insurance is an expense you must afford.
Overlooking your health needs during divorce can lead to costly mistakes and may even lead to financial ruin.
There are several options open to you in terms of health care insurance:
Sign up for an individual health benefits plan. If the divorce is a difficult one and you are trying to start out with a clean slate, this may be your only or best option. For some, this may be an expensive option, especially considering the other expenses you still have to think of during and post-divorce.
Ask for coverage as part of the divorce settlement. With regard to your own coverage, this is something you may want to discuss with your legal counsel. Usually, the children will be covered by the parent making the higher income, or whose work health insurance will cover them.
Get coverage through your current employer. During the marriage, you may have opted to get coverage under your ex-spouse’s policy because it was cheaper. However, if you are working, and your employer offers a health plan that works for you and your new financial situation, it’s an option that you need to take for yourself and possibly for your children’s needs.
Continue the coverage offered through your ex-spouse’s policy. Yes, this is possible but can be costly. You can do this by taking advantage of the COBRA (Consolidated Omnibus Budget Reconciliation Act) benefits. COBRA is a federally mandated law that protects employees and their families from losing coverage as a result of divorce, death, job loss, and other circumstances.
Under COBRA, you may continue the coverage for up to three years. However, you must be willing to pay for the premium or the monthly fee in its entirety for coverage up to 102% of the plan cost. The COBRA law terminates once you remarry or obtain coverage of your own.
Divorce and the divorce expenses that come with it can be financially devastating. However, this need not be the case.
Take Control of Your Future
When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Kimberly Surber and Leslie Valant, both Certified Divorce Financial Analyst® at Leeward Divorce Financial Planning.
Both Kimberly and Leslie provide step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, our team will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.
This information is not intended to be a substitute for seeking legal advice from an attorney. For legal or tax advice please seek the services of a qualified attorney and/or qualified tax professional.