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Dealing with Divorce

Marriage is one of the most important milestones in an adult's life. It represents a life partnership between a couple, and the building of a new family. According to Psychology Today, the divorce rate in the United States has increased since the start of the 20th century, and that rate has steadily risen since the 1970's a number of states instituted "no-fault" divorce laws.

The dissolution of a marriage can be a long and difficult process for all involved, and the impact can be long-lasting and far-reaching. Regardless of how amicable or contentious a divorce is, there’s no denying the huge, and potentially devastating financial impact it has on both parties.

Prepare for the Financial Consequences of Divorce

Richard Jaramillo of SingIeDad.com, reminds people no one wins in divorce by observing, "In my opinion, divorce should only be the last option because nobody wins after the divorce is settled. Families are broken apart, the children suffer the emotional backlash and BOTH parents experience financial ruin for years to come."

In an article entitled "Counting the Cost of Divorce: What Those Who Know Better Rarely Acknowledge," which appeared in the public policy journal Family in America , David G. Schramm, PhD observes that between 1972 and 1998, the divorce rate doubled. The percentage of divorces during that time jumped from 17 percent to 34 percent in just over 25 years. He mentioned the dramatic increase to show that ultimately, the financial impact of divorce extends far beyond a couple and their children.

Basic Facts and Information about Divorce

Divorce is the legal process for dissolving a marriage. Regardless of the circumstances that led to this point, the resolution of the legal aspect of the marriage doesn't always mean that either party has emotional closure. Emotional healing can take longer.

The cost of a divorce may be far more expensive than legal fees or division of assets. Different states have different laws about property division, distribution of assets, and even child custody.

The cost of a divorce varies widely. An inexpensive divorce that is relatively hassle free may cost as little as $1500, while a complicated one may cost as much as $50,000 in legal fees alone.

Some states have a legal waiting period between the time of separation and finalization of the divorce. This may be called the “cooling off” period.

When Raw Emotions Wreak Havoc on Financial Health

There is often a tremendous overlap between the emotional feelings associated with divorce and the financial ramifications. Don't succumb to the temptation of racking up debt on credit cards to spite your soon-to-be ex-spouse, or to sooth that emotional void.

Adina Laver, MBA M. Ed, CPC of Main Line Family Law Center provides insight into how easy it is for volatile emotions to overshadow common sense when a couple refuse to deal with things rationally, allowing their legal fees soar to the point where the debt gets added to other credit card debt.

She says, "The other side of the issue, as I alluded to before, is that debt is often created in a divorce because emotions take over. What could have been an $8K divorce turns into a $50,000 to $60,000 divorce or more because partners feel angry, resentful, etc... People will charge counsel fees to credit cards with no ability to pay them off at the end because the settlements they get are not able to cover the cost of the litigation."

To avoid any unforeseen financial problems, look to Bankrate's Financial To-Do List for Divorcing Couples. The ten item checklist is designed to help couples get through this part of the divorce. Bankrate also has a helpful list of Do's and Don'ts of Getting Divorced.

Division of Assets

Different states have different laws about asset division. If you live in a state where community property is the law, then you can assume that assets acquired during the marriage will be split. Mandy Walker used her divorce experience to create a blog about divorce. She sees it as a way to give others information she and her fellow contributors learned along the way.

One of the things she certainly wasn't ready for, even with spousal and child support, was how drastically her life would change because of the divorce. No one wants to think that they could become destitute because of a divorce, and the women typically suffer the greatest financial impact in a divorce.

Walker explains "There's always less money after divorce and basically it costs more for two people to live singly than it costs two people to live together. I have it in my head that housing expense shouldn't exceed more than about 33% of the household budget so if your housing expense stayed at the same level, you will certainly need increased income to be able to cover it."

She added, "It's often unrealistic to think you can maintain the same housing cost so many people do choose to downsize as a way of coping with increase in expenses. However, with children moving between two houses, then both parents really need to make sure they can accommodate their children."

Alimony or Spousal Support and Child Support

As Adina Laver, MBA, M. Ed, CPC, of the Main Line Family Law Center explains, “I just spoke with a client where there is already a lot of debt and the issue of even being able to get representation is an issue. Some of what leaves women so poorly off at the end of divorce is not having the resources to get legal support or representation and therefore not advocating well for themselves."

She went on to add, "I have seen many times where the wage earning spouse works to convince their partner to take less than what they are really entitled to because they instill fear in them that they will lose their children or something else. So, being poor or not a wage earner also impacts the ability to get a fair divorce."

Expect to have every aspect of your life scrutinized during the support phase of a divorce process. In especially contentious situations, one spouse may use every possible trick in the book to get as much money as possible out of their soon-to-be ex. Some states even use "marital fault" as a consideration when awarding spousal support or alimony.

The amount of spousal support a custodial parent receives is dependent on the other spouse's income. The typical yearly child support award is $3,200 per child.

Dividing the Debt

Divorce also requires debt division, and that can be difficult for a spouse who hasn't been working. It is also one of the biggest financial repercussions of divorce, and how it's divided often gets ugly.

Couples should get their credit reports from all three reporting agencies. Use this tool to find out how much debt is shared. Make a point of keeping track of credit purchases during the divorce. In the bitterest divorces, one spouse may spend money recklessly, just to rack up debt on their shared credit card debt to spite the other person.

Don't Forget About Expenses to Start Over

In the heat of a contested divorce, it's easy to overlook the need to negotiate something as important as necessary funds to start life over as a single person or single parent. Those expenses may include everything from paying the down payment on a new home, to the costs associated with renting a place (including security deposit and rent) or utility deposits for a spouse who may not have established credit with utility companies. Those expenses may also include moving, child care during the moving process, or money to cover any unexpected emergencies.

According to Financial Impact of Divorce on Children and Their Families, published by the Future of Children, a non-profit collaboration between Princeton University's Woodrow Wilson School of Public and International Affairs and the Brookings Institution, divorce has the greatest financial impact on women and children, because their income is much lower.

Men, however, see the opposite, because the size of the household they now support is much smaller. If women are suffering financially following a divorce, consider how much worse things would be if they also have to pay off 50 percent of the debt accumulated during marriage. It is easy to get overwhelmed at any major lifestyle change, especially a major drop in income.

Lisa Arends of Action Potential Wellness remembers how difficult things were for her after her divorce. She and her ex owned their house together, but he refused to sell it, (she didn't want it anyway,) and then he refuse refinance it to remove her name from the mortgage -- even though that was stipulated in their divorce decree.

Things became even more difficult for her when her ex-husband refused to make mortgage payments so she owned a house she couldn't live in. They wound up in foreclosure, and she learned a hard lesson from that experience - that things the law would see as fraud in business don't constitute fraud in marriage -- or its dissolution.

The Road to Financial Recovery

The worst thing any newly divorced man or woman can do is not pay off accumulated debt. The Federal Trade Commission's Consumer Information Coping With Debt page is a helpful resource for finding help, or you can download a budget worksheet or other budget management planning tools to help you successfully manage your finances.

No matter how financially strapped you feel, don't ruin your credit by not paying off debt. Better Business Bureau recognized debt management services help people find affordable ways to pay off their debt.

Resources Used:

1.       Psychology Today: Dealing with Divorce

2.       The Family in America: A Journal of Public Policy’s Counting the Cost of Divorce: What Those Who Know Better Rarely Acknowledge

3.       Cornell University Law School’s Legal Information Institute – Divorce & Separation Page

4.       Two of Us: The Financial Impact of Divorce

5.       Bankrate: 10 Steps to a Money-Smart Divorce

6.       Bankrate: The Do’s and Don’ts of Getting Divorced

7.       Tomorrow’s Money for Today’s Woman: The Financial Effects of Divorce

8.       Cornell University Law School’s Legal Information Institute: Child Support Page

9.       DivorceSupport.com: Division of Debts Upon Divorce

10.   FutureOfChildren.org: Financial Impact of Divorce on Children & Their Families

11.   FutureOfChildren.org:About the foundation

12.   Federal Trade Commission’s Consumer Information: Coping with Debt Page

13.   Federal Trade Commission’s Consumer Information: Budget Sheet

14.   CareOne’s Budget Planning Tool

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