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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 is referred to as “community property” and it involves a 50-50-type division of all marital properties.

Absolute community property applies to a few states, with the majority being equitable distribution states. If you decide that divorce is right for you, it is likely that you will have to divide all of your businesses and properties. Depending on state policies, this applies even if your spouse didn’t have any significant role in growing the 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 assist you with alternatives; for example, on a monthly basis, you can pay your spouse half the current value of your company. The downside is that this can last for years and prove financially burdensome.

If filing for divorce is inevitable and you have company assets like vehicles, buildings, equipment, and utilities loaned under a joint account, you can buy those loans out to ensure your business doesn’t suffer avoidable financial damage during legal separation.

If your spouse is a company employee, you need to fire them before you initiate a divorce. Why? Because, depending on their significance and contribution to the company, the court may choose to give them ownership of the company—especially if they play a primary role in leadership.

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 carrying the burden of these expenses alone. The costs can be staggering and without prior planning, they can 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 hired 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, and as previously mentioned, try to buy out your company equipment and resources to maintain its good credit history.

4.  Affects Real Estate Properties

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 void:

Exclusive ownership is void if you have made the property your house or office building; if you paid the property taxes via a joint account; or if you have allocated its profits to a joint account. If any of these stipulations apply, then you are likely to have to divide the assets evenly with your spouse. For example, the house you and your spouse live in is considered marital property and will be divided equitably. If you and your spouse decide to sell the house, you may want to consider a mediator or legal counsel to help settle how the sale’s proceeds should be divided.  

If you or your spouse doesn’t want to sell the house and wishes to continue living in it, then that individual forfeits ownership of other marital real estate properties that have equal market value to the house. Alternatively, you or your spouse can buy out the other’s interest in the home’s property to make things even.

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 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.

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