The Cost of Divorce: 5 Things You Need to Know About Divorce and Your Finances
Divorce isn’t just emotionally traumatizing in many cases—it can also take a tremendous toll on your finances. No one should feel like they have to stay in an unhappy marriage for fear of financial ruin. But you should consider the following before you take the next steps in filing for divorce:
1. Divorce Divides Businesses
If two people in a marriage own a business or businesses jointly, everything must be divided in the subsequent divorce. This occurs through a process called Equitable Distribution, and generally it involves a 50-50-type division of all marital property.
If you decide that Divorce is a process you want to go through then it is likely that you will have to divide all of your businesses and other property. This applies even if your spouse didn’t have any significant role in growing the marital company or business.
If you are the owner of a company and did not sign a prenup agreement prior to marriage (usually for romantic reasons), you can still try to create a postnup agreement; however, the judge for your case may be dubious about its sincerity. If a postnup fails, your lawyer can help you come up with alternative ideas.
If your spouse is a company employee, you need to discuss how to handle them with a lawyer before you make the unilateral decision to fire them. Why? Because, depending on their significance and contribution to the company, your actions could be seen as marital waste if they make a significant contribution to the company, or as simply vindictive whether they make a significant contribution to the company or not.
Divorce also affects your intellectual property rights. If you own a patent or trademark for your company, the income generated by royalty fees needs to be equitably divided. Intellectual property rights lawyers can assist you with identifying bounds when it comes to ownership, but it is the court that determines the fair division of the proceeds (considering that both parties invested money in the creation process).
2. Can Damage Long-term Financial Stability
As a married couple, you and your spouse shared the financial responsibility of things that may have included, cost of living, education for your children, a mortgage on your home, car payments, etc. When you choose to divorce, however, that means you will each have to carry the burden of some of these expenses alone. These costs can be staggering and without prior planning, they may swiftly consume your salary and savings.
To plan for these inevitable costs, it is important to keep detailed, well-documented records of your individual finances, including your credit score. Remember to factor in the cost of child support, lawyer fees, and other professionals you will have to hire throughout the divorce process.
3. Impacts Your Credit Score
While it may not be the first thing that occurs to you, divorce can seriously affect your credit scores. Even small lapses in timely payments can damage your credit score.
The first step in avoiding damage to your respective credit scores is to sever joint accounts; for example, banking (an obvious one), telephone, electric, Internet, and any kind of subscription-based accounts.
If you own a business, they also have a credit history, so settle the ownership of the company, as quickly and amicably as possible to avoid damage to your business’s reputation.
4. Affects on Real Estate
If you are an existing owner of property and then get married, it is automatically your exclusive property; however, in some cases, exclusive ownership can be transferred:
1. If you re-deed the property in your and your spouse’s names then you have transformed separate property into marital property; or
2. If you use marital funds to pay the mortgage, make upgrades, etc. your spouse may make a claim on the principle reduction of the separate property over the course of the marriage, or the increase in the value of the property as a result of the upgrades.
5. Divorce Can Lead to Poverty
The divorce process is emotionally difficult for almost everyone; however, for some, the financial consequences are equally devastating. Child support does not sufficiently support, and should not be used to support, the overall cost of living for a spouse and child (or children). Many single parents struggle to afford daycare. But if you have to stay home with your child, how can you hope to keep a steady job and generate reliable income? Many people think, “It won’t happen to me.” But without proper planning, it is far too easy for bills to mount up and for financial woes to set in. Ultimately, when you are unprepared, even if you are one of the best entrepreneurs, divorce can trap you in poverty.
So, what’s the bottom line? Do your research, plan ahead as much as possible financially, and of course, find a reliable, experienced lawyer to represent you before you file for divorce.