Divorces are not only stressful, but they can also hit you in the pocketbook. According to Samantha Fraelich, a financial advisor with Bernard R. Wolfe & Associates, many people don’t realize how their finances will be affected by a divorce.
Here are 5 ways a divorce can affect your bottom line.
1. Attorney’s Fees. Even if your divorce is amicable, you can easily spend $2,000 to $3,000 on attorney’s fees and costs. However, if your divorce is hotly contested, all bets are off. According to Forbes, the average cost of a divorce is $30,000.
2. Child Support and Daycare. If children are involved, breadwinners are typically ordered to pay child support to the other spouse. The amount of support is usually a function of the parties’ respective incomes and the amount of time each parent is spending with the children. Childcare expenses are often shared by parents, but many costs pop up at the last minute and it’s sometimes difficult to get the other spouse to pay up.
3. Taxes. Once your divorce is finalized, your tax filing status will change from married filing jointly to single, which could increase your taxes. It is always a good idea to discuss the potential tax consequences of your divorce with a certified public accountant.
4. Retirement. IRAs, 401(k)’s, and other retirement plans are often split up in divorces. The amount each party gets often depends on the extent to which the employee made contributions before and during marriage and after the parties’ separation.
5. Insurance. Most married couples who don’t have long-term care insurance assume that their spouses will take care of them in their old age. Long-term care insurance helps ensure that a person who cannot perform the basic activities of daily living (such as dressing bathing, eating, toileting, walking, etc.) is taken care of and usually covers home care, assisted living, adult daycare, hospice care, and nursing home facilities.
Source: Forbes.com, “5 Ways Divorce Takes Your Money,” Kenneth Rapoza, March 12, 2013