Finances and Divorce
Posted by Kirkland, Sommers, & Gearhardt in Legal Advice
Wedding ring on pen, on banknotes background. Marriage of convenience
A divorce will not only affect your lifestyle and standard of living, but also your ability to meet your financial obligations. The inherent problem with divorce is that most families go from a two-income household to a single-income household. In almost every case, someone’s lifestyle is directly proportionate to their income. This reduction in income is felt whether you make $20,000 a year or $200,000 a year.
While some of your bills will also be reduced, many fixed costs will remain the same. For example, assume you have the following monthly bills before filing for divorce:
- $250 car payment
- $1100 mortgage payment
- $400 average utilities
- $100 insurance
- $500 credit card payments
- $600 groceries
Pre-divorce monthly expenses are $2,950. After the divorce, assume the credit card debt of $500 per month was split between the parties. Also assume utilities and groceries decrease by 40% because there are less people in your home. However, many of the other expenses are fixed and will not change. Your post-divorce expenses using the assumptions above are still $2,300. In most cases, a reduction in expenses of around 20% does not even come close to offsetting the accompanying reduction in incomes.
Now consider additional expenses associated directly with the divorce. These include legal fees that typically start at $2500 and go up from there depending on how complex or contentious your divorce is, closing costs or realtor fees if you have to refinance or sell your house, replacing half of your furniture, dishes and other household items, and court fees. If you have children, child support is likely, and if you were married for more than five years, there is probably an exchange of spousal support. You should also be aware that retirement account will likely be divided so many people need to increase contributions to their retirement to make up for any portion that was lost; this is especially true if you are over 45 years old.
After being presented with this information, it is not uncommon for a client to ask, “How can I afford to get divorced?” The answer is that you need to have reasonable expectations about the outcome of your case and plan accordingly. Look at your budget and figure out where you can trim expenses. If you don’t have a budget, look at your monthly spending and make one, then figure out where you can cut expenses.Often you can refinance your mortgage for a longer term, i.e. lower payment. You may also be able to consolidate debt or reduce the interest rate on your student loans. Consider getting a more reasonably priced car or, better yet, drive an old car that is paid for and eliminate your car payment altogether.
There are plenty of ways to reduce your monthly expenses, you just need to figure out where in your budget you can save money and accept that it will have an effect on your lifestyle. Planning ahead and having candid conversations about your expenses can take some of the financial sting out of a divorce. Of course, don’t make any drastic changes until your talk to your attorney about how it may affect the divorce.
If you’re contemplating or even in the middle of a divorce, consider the following steps:
- figure out a budget
- don’t make any large purchases
- don’t add any debt unless absolutely necessary
- make the minimum payments on your credit cards
- talk to your attorney about what financial exposure and obligations you may have as the result of a divorce
If you are looking for more information or are considering a divorce, we invite you to fill our free consultation page on our website; or give us a call: 937-853-5555