The Top Three Most Overlooked Divorce Expenses
Any way you slice it, a divorce brings with it a complete shake up of your finances. The total division of a household’s shared assets is no small feat. If you’ve ever moved after living in a spot for years then you know that the longer that you live in a place, the more things accumulate. Divvying up possessions in a divorce has a similar undertone when you’re deciding who gets what.
In most cases, divorcing couples have spent some time weighing the financial consequences of the choice ahead of making the difficult decision to file. Divorce is often expensive and emotional, and it’s easy for details to slip through the cracks amid the chaos. The Financial Knot has put together a quick list of three financial pain points that are often overlooked during a divorce.
Taxes. You can’t escape them. They’re one of the biggest expenses that blindside divorcing couples. If you aren’t particularly financially savvy, it might be a good idea to work with a Certified Divorce Financial Analyst ®or a Certified Financial PlannerTMwho can provide a level of expertise when it comes to sorting through the ins and outs. How complicated it is to sift through the tax implications of your divorce really depends on the specifics. Child support, alimony payments, dividing retirement accounts, the sale of major mutual possessions—all come with their own tax considerations. A careful assessment of the tax-related expenses surrounding your divorce will help feel like you are on your way to a solid post-divorce financial forecast. Preparedness will help you sidestep any tax-related surprises and address these costs up front during the divorce process. Knowing that withdrawing $25,000 from your IRA account is not the same as pulling $25,000 from your shared brokerage account can save you a serious post-divorce IRS headache.
- Being single costs more
The truth is that your expenses are greater when you’re single. Couples split expenses. Your earnings are higher in a double-income household. This can go a long way in terms of financial stability; as an example, qualifying for a loan is easier on two incomes rather than one most of the time. When you transition to a single-income household, you will be shouldering living expense solo.
Between shared cellphone plans and streaming accounts and splitting household costs like food, toiletries, and utilities, your monthly expenses are likely going to increase, and your budget is going to have to be adjusted. Along with the increase of expenses and loss of bundling discounts, you also lose out on some of the joint-filing tax benefits when you file as a single or head of household. This is another tax consideration that is often not thought about during and in the aftermath of a divorce.
- Hidden costs
Once the decision to divorce is made and the process is started, you and your soon-to-be-ex will begin the arduous task of dividing up your joint possessions. But it’s the little things that often slip under the radar. While you’re squabbling over who gets to keep the good china and linens, it’s important to consider your post-divorce finances.
The true cost of a divorce is situationally dependent—there is no one size fits all. Are you selling the marital home? You should consider not only your equity and the costs associated with selling a home but also the costs associated with renting a new house or apartment or undertaking a new mortgage solo. Will you qualify for the new mortgage alone?
The move from a shared space to a single income household usually brings with it an increase in your monthly expenses and—in most cases—a decrease in your total household income and cash flow. Shared expenses cut costs. It’s important to factor things like your new cellphone plan, increases in insurance premiums, replacing household possessions like your bed, and reassess your cost of living. It’s important to consider your post-divorce budget ahead of time.
Divorce doesn’t need to bring with it financial instability. Taking the time to do a proper assessment of your finances and flushing out any overlooked divorce expenses can help you put your best post-divorce financial foot forward.