Money: The Third Side Of Divorce

Everyone knows about the legal side and the emotional side of divorce, but all too often they forget about the third side – the money or financial side. And that can be a mistake. Whether you have a little or a lot, the decisions you make during your divorce can have a major impact on your future.

Divorce is at its core a financial transaction. Two people come together and, in the end, they reach an agreement to divide a group of assets (things they own) and liabilities (debts they owe), and settle custody and other issues. So, with just a few exceptions, money-related issues dominate the entire process, yet you can get so caught up in the legal and emotional sides that you forget how important the money side really is until it’s too late.

So, what should you focus on when it comes to the money side of your divorce? Here are three areas to seriously consider:

1. What’s the divorce going to cost? Divorce is expensive. And the money you spend on your divorce will not be available for you to spend on your new life. Forbes.com estimates the average divorce costs to be roughly between $15,000 and $30,000. There are all kinds of costs associated with divorce and many of them are within your control. For example, if you plan to work with an attorney, remember attorney’s fees can represent a large part of the costs, so do your homework and hire someone who will really work for you at a cost you can afford and be sure to get the terms in writing. Then don’t stop there, look for other ways to cut costs.

2. What’s it going to cost you to live after your divorce? Many people believe that their costs will go down when they get divorced, when they might actually go up. To get a better idea about what might happen in your situation, calculate what you’re currently spending and then determine how your costs might change after the divorce. Remember, you are taking one household and turning it into two, so your costs may be going up in several areas while your income may be staying about the same. It’s important to find out before the divorce is final if you will be okay, especially if the possibility exists for spousal support or other remedies.
3. What’s the true value of what you own and what you owe? Sometimes this can be a real eye-opener because things are not always what they appear to be. While you’re pretty safe in taking the statement value of your savings account as what you will actually get, unfortunately, the same cannot always be said for some other investments like retirement plans that have never been taxed and stocks that have appreciated in value. Failing to take taxes into consideration when dividing assets can mean that one spouse may end up with a smaller piece of the pie when they make a withdrawal or sell the investment. For example, let’s assume that in your settlement, you get a 401(k) valued at $100,000 and your spouse gets a savings account valued at $100,000. When your spouse takes money out of the account he or she will get the full amount. However, you will not fare as well. If you’re in the 25% tax bracket (federal and state), you could owe 25% or $25,000 in taxes, and if you are under age 59 1/2, you could owe a 10% penalty or $10,000 for a total of $35,000 leaving you with $65,000 and your spouse with $100,000.

As you can see, focusing on the money or financial side of your divorce can make a big difference. Remember, if you don’t mind your money someone else will, and then they will control your future! And this is especially true when it comes to divorce.