Divorce: Minimizing the Financial Impact

By Gary Weiner @ Super Saving Tips


We all have the right to be happy, especially when it comes to marriage and family. Unfortunately, it just doesn’t always work out quite that way. Just because it hasn’t happened to you, don’t think that it can’t or that in some ways you may be different or immune. I personally have been through it, getting divorced in 1998 after 25 years of marriage, and I never imagined it would happen to me. I can tell you that from what I know and have experienced, that no matter whether the divorce was your idea or your spouse’s, there really are no winners in a divorce. In fact, the emotional stress as well as the financial stress can be a real wallop to each party, and can damage and impair both sides from the quick and successful recovery that each person truly seeks.

Minimizing the Financial Impact of divorce

There are some ways to minimize those stresses, but first let me share with you what has changed about divorce recently.

Recent Trends in Divorce

It seems like we all have heard some of the statistical reporting about the rampant number of divorces in the United States today and over the recent decades. The number we often hear is that 50% of all marriages end in divorce, a shocking number to say the least. But amazingly, according to news sources, there is some evidence to show that the one time divorce rate is now trending differently. In recent years, data shows that the rate of divorces is actually declining for reasons that may have nothing to do with “marriage” itself. Conjecture results in a couple of potential reasons.

One reason is that the recession of 2008 has had an influence on the divorce rate. It is a historic fact that people tend to avoid both marriage and divorce in times of economic stress. That’s the way it has been since the first data was examined in the early 1900’s. It’s just too costly and difficult for some people to plan either one of those activities and that has affected some of the numbers in this past decade.

In addition, it’s a fact that the average age of those who marry is getting older than it was just 20, 30, and 40 years ago. It seems more and more people are waiting until their late 20’s and early 30’s today when it was common after WWII to see many couples in their late teens and early 20’s getting hitched. Younger people are exploring their options in life and marriage just isn’t as high as it was on the list back then. This leads to the real statistics showing that marriages that last at least 10 years are less likely to end in divorce than those that don’t last as long. The relatively older couples today have a different expectation and experience that may have let them adjust to marriage in a different way from their parents and grandparents.

Lastly, the statistics show that the women’s liberation movement of the 60’s and 70’s had a great impact on the Baby Boomer generation as women started to realized they didn’t have to solely depend on men to support them. They began to make their way into the workforce in much greater numbers and achieve independence. They then went on to become more educated than ever and flex their muscles for their rights to be on an equal footing with men. The number of women leaving marriages because of these changes increased throughout the 70’s, 80’s, and 90’s. While they still haven’t achieved full equality, women’s ability to be independent is now well established even before marriage, and fewer marriages are ending for this reason.

Although the divorce rate may be declining, the statistics don’t matter much if it’s happening to you. Divorce means dynamic changes to your life, lifestyle, and family. While the event of divorce is no longer the damning experience in society as it once was, the emotional and financial impacts are still devastating unless you are knowledgeable, resourceful, and prepared. And even with that, it’s still a serious risk.

Minimizing the Financial Impacts of Divorce

Here are my personal recommendations to minimize the consequences of one of the most difficult experiences in life:

Can Your Marriage Be Saved?

If you’re on the brink of divorce, emotions are running high and the stress may seem unbearable. But before you proceed, be very sure that your marriage cannot be saved.  Divorce is expensive and stressful under the best of circumstances, and if you can repair your marriage through counseling or other means, consider that carefully. Try to approach the situation as solving your problems as a team rather than assigning blame. Even if you proceed to divorce, this approach will benefit you and your family in the long run.

Lawyers, Mediators, Collaborative, or Do-It-Yourself?

Before you decide on how to proceed, it’s a good idea to become a bit familiar with filing procedures, fees, and the timing of separation and divorce, all of which varies from state to state. This will help you understand what needs to be done before you commit to the process and decide on the person you’re asking to protect your rights.

You do have choices in how you approach the dissolution of your marriage. Most common is hiring a lawyer to help file and process your papers, as well as work out settlement and custody matters when minor children are involved. This is almost always a very costly and time-consuming method to reach the solution, but may be the best choice if you have a very combative relationship with your spouse or feel unable to stand up for yourself.

Be prepared to put money up for a retainer and then pay high hourly fees when you contact your attorney by phone, in person, or appear in court. Every word and second is on the clock and can amount to many thousands of dollars in fees at a time when you are most sensitive and perhaps not 100% clear-headed as your emotions are under attack. If you don’t have a reliable, experienced attorney whom you know and trust, then try to get a referral before turning to a directory or someone you’ve located online. While many divorce attorneys are trustworthy, be aware that some will perpetuate an antagonistic situation with your spouse in order to generate higher fees for themselves. My own divorce attorney failed to present a very reasonable settlement offer to my ex and her lawyer because he thought it “wasn’t in my best interest”…in other words, quick closure wasn’t in his best interest.

Mediators are a good alternative to the traditional divorce process. You get the chance to sit down with your spouse and an independent party to work out all the details while communicating directly with each other. It can be more civilized and friendly, and also less costly. When compared with an attorney, you might not ever know what or how your dialogue is actually going because in many cases they are relaying your messages and something can be lost in the transmission. In mediation, you speak directly with everyone involved. This option is best if you feel you and your spouse can work together (with the help of the mediator) to come to an agreement about the settlement and other issues.

Collaborative divorce is a bit of a hybrid, combining mediation with attorney representation. If your situation is more complex, having an attorney to guide you through the legal issues while working with the mediator to come to an agreement might be the best option for you.

Finally, it is possible to do it yourself, and this is the least expensive option. You can file and sit down to talk one-on-one with your spouse and then draft your own divorce agreement. I only recommend this if your settlement is very clear cut, your relationship with your spouse is cordial, and you feel you can handle the legal details with some research. But they say representing yourself is having a fool for a client, and it’s probably the truth in most cases. Not knowing all the laws and being too emotional can be real detriments and may hurt both of you in the end. Cheap now may come back as expensive later. If you are going to do it yourself, at least have a quick consultation with an experienced attorney so you are aware of what you may be entitled to and consider using paralegal services to handle the forms and process.

Division of Marital Assets and Debts

This is where your financial wealth gets divided up during divorce proceedings. Things like your house, furniture, bank accounts, investments, and retirement plans are divided in a formula from your own state laws which are often 50/50 even if only one spouse actually contributed to the assets (pre-nuptial agreements may exclude some of the assets that are procured prior to a marriage). Likewise, debts incurred will need to be split fairly.

There are some creative ways to split assets that can save you some money, but everyone must agree on those. For example, I kept my IRA accounts and applied her share of my accounts against the equity in our home. The fees to sell off the assets in my IRA were saved and that was hundreds of dollars.

The best way to save money here is to be civilized and rational. The best agreement in the world will still feel unfair to both parties because dividing up what was once yours is painful. Try not to bring emotions and resentments into the negotiations and think through whether that item you’re disputing will matter to you in 5 or 10 years. Focus your energies on what’s most important.

Alimony, Custody, and Child Support

Alimony goes to a spouse who can’t support themselves after a divorce and must be supplemented by the bread winner’s income for a period of time (such as 1-2 years after the divorce is issued). While the decision for one spouse to stay at home (or earn significantly less) may have made sense during the marriage, clearly that won’t work for two independent households. Coming to an agreement on how much alimony and for how long can be a source of resentments, but realistically each state has a formula for alimony and trying for more or less will only make the lawyers richer. You can use an online calculator to get an idea or better yet consult a trustworthy attorney.

If you have minor or disabled children, you will need to support them, either through custody or with support payments, until they are independent. Getting full or primary custody of your children can be a complex and difficult matter if there are serious challenges to either party by the other. This matter may be investigated by the courts to check on a person’s abilities to supervise and care for children and you may be disappointed in the outcome without proper attention to detail. Check with your own state’s laws and regulations to fully understand what you need to do. You’ll also need to work out visitation for the non-custodial parent. Try to remember that this is about what is best for your children, and that maintaining a good relationship with both parents is important to their well-being.

Finally, there is child support. Monies go to the custodial parents and in lots of cases are deducted directly from your paycheck (wage garnishment). Now granted, you do want to take care of your children, but know that if you don’t, you can face fines, imprisonment, and other serious penalties if and when you fall behind in your payments. The amount you pay has mostly to do with the wages you earn and the lifestyle you live. The numbers can be a huge adjustment in your own lifestyle if you are the payee.

Besides these three issues, there are additional issues like health insurance to provide. If you find yourself responsible for alimony, child support, and health insurance, it may be a huge strain on your income, and you’ll need to adjust accordingly.

Starting Over

When you’re starting over after a divorce, it may feel like you’re back to square one financially. You’ll need to consider your new household income situation and expenses.

If you’re the one who hasn’t worked and shared your credit cards with a successful, working spouse, you may have no credit of your own. You may still have some debts you gained in splitting up and then you are in a dilemma. It’s always a good idea to establish some credit while you’re married. Trying to do so after divorce can be a real challenge.

On the other hand, if you’re the one paying alimony and child support, you may find your budget straining to accommodate these responsibilities and will need to find ways to reduce expenses and generate additional income.

 

Ideally, the divorce process can be amicable and fair and eventually leads both people to a happier existence. In reality, it is often not at all like that, being adversarial and selfish and requiring a long period of recovery. The facts are that assets divided in half don’t really add up to two new households and some percentage of that wealth just disappears and is lost forever. We almost never think of divorce as something that can happen to us (especially when we’re young and in love). The process of fighting over money and things and children just never occurs to us. But it does happen. While no one likes to think about it, you need to have some idea of what might happen to you and your family if it does and be able to protect yourself and your children.

Have you ever been through a divorce? Did it help make you happier in the end? Were you able to prevent or recover from financial disaster?

Image courtesy of David Castillo Dominici at freedigitalphotos.net (with changes)


   About Gary Weiner @ Super Saving Tips

Over the last 45 years I've worked in retail (department stores and supermarkets) and financial planning. In addition, I am a shopper, born and bred, who enjoys the challenges of finding the best items for the best prices. When I'm not busy saving money or blogging over at Super Saving Tips, I enjoy baseball, music, and classic movies. I am retired and live in New Jersey with my wife.

 

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