Written By: Hollis Hardiman, CDFA™, Wealth Advisor & Partner
People who are considering divorce usually think about the emotional toll the split will have on their family. Removing someone from your life who played such a close part in it can be very stressful, especially if there are children involved. But the financial consequences of divorce can’t be overlooked for long. For recently divorced women and men, having a plan is necessary to ensure their financial wellness in the future. Even couples who are both working full time need to have a plan in the event that their 401(k) is split or rent on a new place takes up too much of their income.
It is difficult to prepare for the financial effects of divorce, whether you have a plan or not. This is especially true of couples who divorce after many years of marriage. Hollis Hardiman, a Certified Divorce Financial Analyst (CDFA) with Merit Financial, answering frequently asked questions that couples have about divorce. She takes a look at the short and long-term impacts of divorce and where financial pain points can arise.
Will You Lose Money in a Divorce?
There will be expenses associated with court and attorney fees that neither spouse planned for. But the question goes beyond those immediate expenses. People don’t look at the long-term picture of their finances. Things like alimony, child support, and even having to pay for home repairs alone need to be factored in. A Certified Divorce Financial Analyst can help build a plan to assist with building your financial future post-divorce.
“Instead of losing money, it’s better to look at it as a division of resources and an increase in expenses,” says Hollis, a CDFA with Merit Financial. “There are now two households to take care of instead of one.”
Divorce hits the non-working spouse hardest. They have a very difficult time catching up to the money-earning ability of the other spouse, and most times never reach it. Starting over after divorce with little money is not for the faint of heart. Those who aren’t prepared for the end of alimony or child support payments are leaving themselves at risk of serious financial hardship. Before finalizing a divorce, Hollis usually advises non-working spouses to ease themselves back into a working world.
What Financial Issues do Divorcees Face?
“One of the biggest issues I see is who will keep the house,” says Hollis. “Can they afford the home and can they afford to buy out the soon-to-be ex-spouse? When the market is hot, they can have trouble doing both.” Even when they do figure out who gets the house in a divorce, or if it should be sold, finding an interim place to stay is difficult to do after your income has been split. Mortgage or rent, along with general upkeep of a house can deplete a person’s resources.
2. Health Insurance
Another issue is health insurance in a divorce settlement for the non-working spouse. They can look at options on the health exchange, or they can apply for COBRA for up to 36 months. COBRA is expensive, and after 36 months they might find themselves using the exchange anyway.
3. Future Expenses for Children of Divorcing Families
“Children only get more expensive with age,” says Hollis. “Parents need to figure out who is paying for shoes, sports, and even a car when they’re old enough.” Once the non-working spouse finds steady employment, they also need to plan for expenses caused by their work hours, such as daycare or a babysitter.
Should I Seek Help on How to Deal with Divorce Finances?
The best way to prevent struggling financially after divorce is to surround yourself with trusted professionals. “ Many people go to their friends for advice, and their friends are biased and take their side,” says Hollis. “That’s great for emotional support, but this is a business situation and you need professional help.”
Before you head to discovery or mediation, you need to familiarize yourself with the details of the family finances and how divorces work. A CDFA can help you understand the different types of accounts, stocks, and benefits that you’re entitled to. A CDFA can also help you identify outstanding liabilities and debts that can affect your future. If you have questions about how divorce may affect you financially, reach out to us and we’ll be happy to give you guidance.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.