Divorce and $100K – How Not to Let it Happen to You

Manoj Prasad

Divorce can be an emotionally and financially devastating experience. The legal fees, property division, and loss of combined income can drain savings and destroy nest eggs that took years to build.

According to Forbes, the average divorce in the U.S. costs between $15,000 and $20,000 in legal fees alone. Add in the division of assets, spousal and child support, and other costs, and the total price tag can easily exceed $100,000.

The financial hit is even worse for those approaching retirement age. People who divorce later in life have less time to recoup losses. To avoid financial catastrophe, it’s essential to anticipate and minimize the monetary damages as much as possible.

With some careful planning and proactive measures, you can prevent divorce from destroying your finances.

Examine Your Spending and Assets

The first step is gaining clarity over your family finances. Make a list of all assets and debts with your approximate equity in each. This includes savings and checking accounts, investments, retirement accounts, real estate, vehicles, collectibles and personal property.

Understanding exactly what will be divided and negotiated is crucial. Additionally, track current income and spending patterns. Where is the money going each month? Identify areas of excess that could quickly inflate the cost of maintaining two separate households post-divorce.

Create a Financial Exit Strategy

With this baseline understanding of cash flow and assets, you can start mapping out a financial exit plan. Having this strategy in place while still together can guide decision-making throughout the process, preventing rash choices under emotional duress.

First, build an emergency fund with at least six months of living expenses to act as a financial safety net. Go through each monthly expense category and slash any excess in anticipation of maintaining two households on the same net income.

Pay down shared debts with discretionary money as much as possible. Also, take inventory of valuable assets and collect documentation on account balances, loan terms, original purchase prices and appraised values. Doing your homework early on gives you more leverage when negotiating settlement terms.

Consult the Experts

Hiring a divorce lawyer and financial advisor from the start helps ensure you get your fair share in the settlement and that the numbers actually add up for your new life post-divorce. Those who represent themselves often walk away with far less than they deserve..

An experienced lawyer can give realistic expectations on asset division, alimony, child support and other separation terms specific to your situation. They can also guide you on which accounts should be separated right away versus those that will be negotiated later.

In addition to legal counsel, meet with a financial planner. They can run projections, assess your retirement readiness, and provide a second opinion on whether settlement agreements make solid financial sense in the long-run. They may also suggest alternate arrangements that better support each person’s financial future. Having these outside perspectives provides valuable insight.

Consider Mediation

Opting for mediation instead of litigation is much less hostile, time-intensive and expensive. Mediated divorce allows you to work through concerns directly with your spouse and come up with win-win solutions. Having more control over settlement terms leads to better financial outcomes.

Hiring an experienced mediator guides you through dividing assets and debts, spending plans, short and long-term support amounts, and other separation details in a non-adversarial environment. They facilitate compromise and creativity while ensuring agreements comply with state laws.

If negotiations hit an impasse, they can also make suggestions and reality test options. In some cases, just a few strategic mediation sessions is all that’s needed to dissolve a marriage amicably.

Separate Emotions from Economics

During such an emotional experience, it’s crucial to detach feelings from the financial decisions. For example, couples often argue intensely over β€œthings” representing symbolic value like the house you brought your babies home to, vacation properties or heirlooms.

But quibbling excessively over one cherished asset you can’t bear to part with could cost you the financial means to start fresh.

Create some emotional space from those sentimental attachments. View possessions through an economic lense when negotiating to avoid compromising long term financial best interests or overspending legal fees arguing over symbolism. Stay focused on the numbers and how to split hard assets equitably based on dollar values rather than psychological attachments.

Line Up Housing Options

Living arrangements make a big difference both financially and emotionally before, during and after divorce. Having alternate housing lined up prevents being stuck living together through lengthy settlement negotiations or being pushed into a suboptimal situation under pressure.

Research affordable apartments and houses for rent or sale that meet your post-divorce budget. Moving in with nearby family or friends temporarily is also an option to create distance during the divorce process while allowing time to secure new housing.

Just be cautious about moving out before consulting a lawyer as this could impact legal rights and custody matters depending on your situation.

Think Twice Before Raiding Retirement Savings

The temptation to cash out retirement funds can be intense when needing to cover legal fees, set up a separate household and survive on one income. However, raiding savings earmarked for your future impedes ability to retire.

Withdrawing funds pre-retirement also carries hefty penalties. And retirement accounts like 401Ks may have better legal protection than regular savings in divorce.

Before touching those accounts, cut unnecessary spending to the bone and use an emergency fund if possible. If you do make retirement account withdrawals, try keeping it to the minimum amount needed to get through the crisis period.

Consult a financial planner to understand the long-term impacts beforehand. There are also special circumstances like high legal fees or medical bills where you might negotiate with an employer-sponsored account trustee to take a one-time partial distribution penalty-free.

The Best Defense is a Good Offense

Ultimately, defending your financial future in divorce starts long before a split actually unfolds. Avoiding common money traps like overspending or racking up significant joint credit card balances makes it easier to equitably divide assets if the time comes.

Seeking alignment around shared money values and regularly communicating about finances also reduces odds of divorce in the first place.

Taking a proactive approach gives you greater choice in settlement terms and housing options, preventing desperation-driven financial mistakes. While a high-asset divorce generally costs over $100K, the price tag can balloon much higher without advance planning.

Following these preventative steps will help minimize financial carnage. And perhaps divorce could cost you less than $100K after all.

Share This Article