Divorce means sorting emotions and money. Learn about the impacts, money changes, and gain clarity for a smoother journey.
Divorce is obviously a major life event for many people. While the divorce rate in the U.S. is trending down, first marriages end in dissolution 35-50% of the time, depending on the source.
For anyone going through a divorce, there are many impacts and relative adjustments to be made, and many financial implications for each party.
For instance, each divorced individual needs a more than 30% increase in income, on average, to maintain the same standard of living they had prior to their divorce.
Legal and accounting fees during and after the divorce process also can have a sizeable negative impact on each party’s finances. Overall, divorce costs can easily run into the tens of thousands of dollars. Other costs to consider:
- Filing fees
- Courtroom expenses, such as transcript costs
- Divorce forms (provided free in some states)
- Process server for serving divorce papers
- Mediation costs (required in some states)
- If real estate is involved, you’ll pay a real estate appraiser and costs of recording deed fees
- If a business is involved, you’ll pay for a business valuation, certified public accountant and other professional fees
- Child custody evaluator
- Expert witnesses
How does divorce financially affect women?
Generally, women suffer more financially than do men from divorce. The financial burden is greatest during the first year after divorce and varies depending on: (1) how much money the woman contributed to the family income before divorce, and (2) the ability and willingness of her former husband to make child support payments.
- About one in five women fall into poverty as a result of divorce.
- About one in four women lose their health insurance for a period of time after divorce.
- About one in three women who own a home and have children at home when they divorce lose their homes.
- Three out of four divorced mothers with child-support orders don’t receive their full payment.
- Women often need the help of public assistance programs to supplement their family finances, which often still fail to cover all financial necessities after divorce.
Although mothers usually suffer financially from divorce, some research says that in recent years this situation has improved.
How does divorce financially affect men?
Most men experience a 10–40% drop in their standard of living. Child support and other divorce-related payments, a separate home or apartment, and the possible loss of an ex-wife’s income add up.
Generally, Men who provide less than 80% of a family’s income before the divorce suffer the most. On the other hand, men who provided more than 80% of a family’s income before a divorce do not suffer as much financial loss, and may even marginally improve their financial situation.
Fathers with custody or who share custody of children have additional expenses. Often, men’s earnings are “garnished” by the state. In other words, money they owe for child support is taken directly out of their paychecks. One man we know was divorced three times, and most of the money from his paycheck was gone before he got it. He was unable to get his child support orders amended despite his declining income.
Impact of Divorce on Credit Score
Your credit report doesn't state whether you are married, single or divorced, so changing your marital status has no impact on your credit. However, how you handle any joint accounts with your former spouse can have an effect on both your credit report and theirs.
Joint Accounts Will Still Appear on Your Credit Report
Accounts are reported for each person associated with it, so if you are listed as a joint owner, cosigner or authorized user, you must deal with that account prior to the divorce. That means closing the account completely or otherwise ensuring your name or your ex-partner's is totally removed from the account. As long as the account remains open with both of your names on it, you are both legally responsible for it, regardless of what other agreements may say.
How Does Divorce Impact Home Ownership
- Refinance your mortgage.
Refinancing the mortgage releases a spouse from responsibility for that mortgage when their name is removed from the loan.
Some refinancing options you have when dealing with a divorce include:- Conventional refinance
- Streamline refinance (for FHA, VA and USDA loans)
- Cash-out refinance
- Sell your home
The divorce agreement might call for the sale of the home and the splitting of profits. If you go this route — and many couples do — consider the costs. These might include the Realtor’s commission, the costs of sprucing up the property to make it more attractive to buyers, real property transfer taxes and capital gains taxes. - Pay your ex for their share of equity
Let’s say your home is worth $300,000, and you owe $200,000 on the joint mortgage. In this case, you’d have $100,000 in equity, so you’d need $50,000 to buy out the other spouse’s share (assuming a 50/50 split).
Buying a Home After a Divorce
Although a divorce can make buying a home more complicated, it is still quite possible. Remember that most situations are unique.
If you are not yet formally divorced, most mortgage lenders will require a legal separation agreement before you’ll be approved to purchase a home on your own.
Impact on Retirement
Typically, retirement assets are treated the same as other marital assets and are split up accordingly. There are obviously some legal and tax implications and your CPA, attorney and investment advisor should be consulted.
Particularly after the age of 50, when more assets have been accumulated and you’re getting closer to retirement, complications are greater and a trusted expert should be consulted.
Understanding these points and seeking professional help will make the divorce process easier to navigate.
