A divorce isn’t just an emotional experience, it’s a financial one as well. In addition to the attorney’s fees and child support or alimony considerations, divorce also requires you and your former spouse to divide your assets and make difficult financial compromises.
It’s important to understand how a divorce may impact your finances so that you can prepare for the road ahead and make it to the other side.
Dividing Assets With Your Spouse
Divorced couples can’t (or don’t want to) share financial assets, so they must be divided as part of the divorce process. This includes the following assets:
- Checking accounts
- Savings accounts
- Stocks and bonds
- Real estate
In addition to the face value of the assets, the tax implications must also be considered. For example, a $100,000 pre-tax retirement fund wouldn’t be worth as much as $100,000 in a checking account since the owner of the retirement fund must pay taxes on the funds in the future.
Real estate is also a major consideration. Homes, vacation properties, timeshares, and rental properties all need to be considered, as well as how the proceeds of any sold properties will be divided.
Beyond assets, debts also play a major role in the divorce process. If you and your former spouse shared significant debts, such as auto loans and credit card debt, the divorce will not terminate your joint financial obligation to the creditors. An agreement must be made to handle the debts in a productive manner.
Child Support and Alimony
Child support and alimony are both payments that one spouse pays to another.
In a divorce involving children, the parent who receives less custody becomes responsible for paying the custodial parent a certain amount of child support. This money is intended to cover the non-custodial parent’s share of food, clothing, and other expenses for the children.
Alimony, meanwhile, is a lump sum or ongoing payment paid from the “supporting spouse” to the “dependent spouse.” This is determined based on which spouse makes more money and how long the marriage lasted. Not all divorces require alimony, depending on the situation.
It’s possible to proceed through a divorce without attorney costs, but most divorcing couples find that they need the help of a professional in order to properly split assets, agree on terms, and communicate without difficulty.
The average cost of a divorce lawyer in 2020 is $250 an hour, and most couples spend about $10,000 to $15,000 on divorce proceedings. The total price tag of divorce ultimately depends on the length of the process and how much is at stake.
The Bottom Line
In order to protect yourself financially in a divorce, consider a prenuptial agreement that provides protection to both you and your spouse in the event of divorce. If it’s too late to arrange a prenup, educate yourself on the factors of divorce and get ready to compromise with your ex-spouse in order to make the divorce process as painless as possible.