The Financial Consequences of Divorce

The financial consequences of divorce can set people back for several years — and when they don’t remarry, it can impede any wealth creation.

One estimate of the average cost of divorce puts it at $20,000 in legal fees and alimony payments, although that figure reflects the fact that the vast majority of cases go the way of no-fault divorce, where neither party contests the terms of the split.

Legal fees for divorce escalate quickly due to the fact that two sets of lawyers are involved. As is the case with other areas of law, judges and even attorneys encourage parties to negotiate settlements out of court to bring down expenses.

Divorcees Shell Out Big

Although it’s possible to pay just a couple hundred dollars if you file your own divorce (by filling out the paperwork yourself and submitting it ot the court), most people shell out for a lot more than that. If children are involved, and a fight over custody or alimony ensues, a divorce can easily run $100,000.

The cost of alimony is based on the length of the marriage, and the difference in each spouse’s income, but the exact formula differs by state. Child support determinations may have less to do with the length of the marriage and more to do with the ages of the children.

You can find online calculators to run the numbers on alimony scenarios but only some of these apps break out variations based on location.

Losses Start Before the Divorce

Interestingly, the losses can kick in even before the divorce — four years beforehand, according to U.S. data from the National Longitudinal Survey of Youth, which found that it affects both women and men.

Half The Revenue Needs To Cover All The Expenses

It’s not a matter of an income being lost to one party to the split. Even if both spouses work, expenses may nearly double following a divorce. As a household separates into two, one spouse has to find a new place to live, and with that pay separate rent or mortgage plus pay for two sets of utilities bills, groceries, transportation, and other living expenses.

The Financial Consequences of Divorce Include Loss of Assets

In most jurisdictions, divorce courts typically distinguish divisible marital estates, usually acquisitions made during marriage due to both persons working together, and pre-marital acquisitions and gifts and inheritances received during the marriage, which are usually not divisible. Assets acquired jointly like cash producing real estate, stocks or business are typically divided between both partners under most state laws.

Stocks and other assets that were shared often need to be sold in order to be divided in two, and that sale can trigger a capital gains tax that might be larger than expected — and if any of it is in a retirement account, that might mean a withdrawal takes place before the age of 59.5, which could add a 10% penalty to the tab.

Financial Consequences of Divorce

The costs of divorce are substantial enough to make even people in unhappy marriages try to stick together to avoid taking a financial hit. It might also contribute to skittishness about marriage — or at least motivate people to wait longer before popping the question.

Readers, would you put up with an unhappy marriage to avoid the costs of divorce? And what kind of financial challenges have you seen among your friends who’ve gotten divorced? Or for those of you who are divorced, how do the costs described in this article compare with what you went through?