Divorce is often discussed in terms of emotional stress, but it can be financially significant as well. Even couples who separate on good terms face unexpected costs and long-term money-related consequences. Assets have to be divided, living arrangements change, and retirement plans are often completely rethought. In some cases, the financial consequences of divorce can be felt for years. Here are eight ways divorce can disrupt your finances.
1. Losing the Benefit of Shared Expenses
Married couples usually share living costs. They split housing, utilities, internet service, and other household bills. After divorce, those expenses are generally paid by one person instead of two. Two people paying for their own household expenses separately is almost always far more expensive than splitting those costs. Even simple costs like groceries and insurance might increase. The added expense can destabilize a budget fast.
2. Legal Fees Can Add Up Quickly
Attorneys, court proceedings, mediation, and filing documents all require money, and these costs can be substantial. Even a relatively straightforward divorce can cost thousands of dollars, while a messy, contested divorce can be extraordinarily expensive. Arguments over property, custody, or support all directly increase the final bill, due to paying for more of an attorney’s time and mediation fees. Some people even go into debt to cover divorce-related expenses. It can be difficult to recover from these costs.
3. Retirement Savings May Be Divided
Retirement accounts are usually one of the largest assets a couple owns. Depending on state law and the circumstances of the divorce, a portion of one spouse’s retirement savings may be given to the other. This can significantly reduce the amount available for future retirement for both parties. Rebuilding those savings can take years, possibly pushing back retirement dates. People going through a divorce close to retirement age can feel this impact the most.
4. Selling the Family Home
Many divorcing couples choose to sell the home they raised their kids in. While selling can provide relatively quick cash, selling a house also comes with realtor commissions, moving expenses, and closing costs. And if you’re pushed to sell at a bad time in the housing market, you may end up accepting a lower selling price. Even if one spouse keeps the home, they may have to cover the mortgage on their own. Refinancing can also be expensive.
5. Changes to Taxes
Divorce can dramatically alter a person’s tax situation. Filing status changes, deductions disappear, and certain tax credits may no longer apply. If not handled correctly, property transfers and divided accounts can cause complex problems, meaning you may have to pay for extra professional help. Child-related tax benefits, and who claims dependents, will need to be negotiated between parents. Many newly divorced people are surprised by how much their tax bill increases.
6. Reduced Household Income
A household that once had two steady streams of income suddenly operates on one. This almost always leaves each person with less disposable income. Some people may need to adjust their lifestyle significantly to compensate. Vacations, entertainment, and discretionary spending may need to be reduced substantially. Budgeting becomes especially important post-divorce.
7. Insurance Costs May Increase
Health insurance is a major financial concern after divorce. Many times, both spouses are covered under one partner’s employer-sponsored plan. One person will need to obtain new coverage, which can be extremely pricey. Other policies, like car insurance, may need to be reworked as well. In some cases, premiums increase because multi-person discounts are lost. These higher insurance payments can add strain on an already tight budget.
8. Delayed Financial Goals
Divorce can force people to put off major financial goals. These plans can range from growing an investment account to bigger goals like purchasing a second home. Plans to retire early or start a business could also be temporarily derailed. It is likely that any goal related to finances will need to be put on hold. Money that would have gone toward these future plans will probably be redirected to legal fees and starting over. Some people need a few years to rebuild their previous financial footing. Because such “future opportunity” costs can be invisible, it is commonly one of divorce’s most overlooked consequences.
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