The high cost of divorce doesn't have to trap you in a bad marriage
Nearly 900,000 couples will file for divorce this year, costing an estimated $11.3 billion dollars. The cost of divorce can be crippling and 20% lead to bankruptcy for one or both spouses.
In this video, I’ll show you how to prepare for divorce, how the process works and how much it really costs. Then I’ll reveal two tricks to getting a cheap divorce and how to survive financially.
The Financial Cost of Divorce in America
Nation, we usually cover making money here on the channel, whether it’s from investing or that side hustle but today I wanted to talk about something that can lose your money in a heartbeat. In fact, two out of ten divorces lead to bankruptcy and when you consider that nearly half of all marriages end in divorce…this is definitely something we need to talk about.
When my mom and step dad split, they didn’t have anything but I think he got less than half of nothing. He lived the rest of his life in a below-ground apartment that leaked from the walls every time it rained…so yeah, not something I want you to go through.
Now I’m not going to get into the emotional costs of divorce which can be just as tough. I’m not a head shrink so I’m not even going to touch it. This video, we’re only going to be looking at some of the costs in divorce, how to survive financially and then towards the end I’ll share some tips on how to get a cheap divorce.
And we’ve all seen the statistics, right? Forty-two percent of first marriages end in divorce with the rates increasing for second and third marriages. Almost a million divorces are filed each year in the U.S. alone with the average marriage lasting about eight years.
Dancers, bartenders and massage therapists have the highest divorce rate by profession…which I guess shouldn’t surprise anyone. Funny enough, farmers, podiatrists and clergy have the lowest divorce rates by profession…so I guess marry a farmer that likes feet.
Who Gets What in a Divorce?
We’ll start off with how your property is separated in a divorce but understand that a lot of these are going to depend on where you live.
Most states go by what’s called common law and separate assets by who’s name is on the title ownership. So if yours is the only name on the deed or registration, the asset is yours in divorce.
The problem here is a lot of times even assets owned before marriage get so mixed with community property that it’s difficult to prove this sole ownership.
Community property states, which includes Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin treat almost all assets and debts as equally owned and split in divorce. Assets and debts from before the marriage are usually considered separate but might also be mingled for balance in a judgement. Some exceptions to the rules, even in community property states, anything inherited by one spouse alone is usually theirs.
It’s important to understand though that judges still have a lot of power to divide up assets for some kind of a balance though they usually try staying close to the general rule. If everything is in your name though, even in a common law state, the judge might try to give your spouse some assets or assign more in alimony.
The big question mark here is often a business created and managed by one spouse. Even if the business was started before the marriage, if both spouses contributed to it or communal funds were used to grow it, then part of the business is going to be considered community property. You’ll have to find a fair market value for the business and compensate your spouse for their share.
What Happens to Debt in a Divorce?
Everyone worries about their assets and income in a divorce but debt can be just as important.
Generally the court is going to follow a lot of those same rules for debt. So any debt you had before the marriage is yours. No offloading that $20,000 in student loans for your worthless art history degree.
For the debt taken during marriage, a lot of times, the judge is going to balance this out with assets unless one side can prove they don’t own that debt.
Understand though, your spouse getting a debt in the divorce might not totally let you off the hook. Your name usually doesn’t come off a creditor’s account in a divorce so if your ex stops paying, they might come after you for the payments and it can affect your credit score.
A couple of things you can do here. One is to just pay off the debt and then sue in court to get reimbursed from your ex. They weren’t paying the creditor so not too likely they’re paying you back but at least you’ve got the court order.
Another option is to petition in court to enforce the divorce agreement and make your ex pay the creditor…but that’s going to mean legal fees so neither of these is a great option.
How is Alimony Calculated?
Alimony or spousal support can be a big one after a divorce.
A lot of people don’t know, alimony isn’t mandatory but can be ordered by the judge, especially if they think the spouse will face ‘hardships’ without support.
The problem here is that hardships is determined by their lifestyle in marriage…so if you and your spouse were livin’ the vida loca while married, the court is going to use that standard of living to determine how much your ex needs.
There’s no set calculation for spousal support but one calculation I’ve seen a few times goes like this. You take 40% of the paying spouse’s net income, so after taxes and after deducting child support which we’ll get to next. Then minus 50% of the supported spouse’s income to find alimony payments.
For example, If you make $4,500 a month and you’re paying $700 in child support and your ex makes $2,000 a month. Then $4,500 minus $700 and times 40% is $1,520 then minus half your ex’s income or about $520 a month in spousal support.
If your ex just wants to be lazy, sometimes the judge will consider a higher income if they aren’t working to their fair level. For example if your ex is trained as an engineer and could be making $60,000 a year…but has decided they want to mow lawns instead and only make $20,000 then the judge may use that sixty-grand or an income closer to that to calculate the support they receive.
Unless both spouses agreed to never change the settlement, alimony can be reviewed with changes in income so it can go higher or lower.
How is Child Support Calculated?
Child support is one of the biggest financial costs of divorce and can easily be a grand or more.
Here again, it depends on where you live. Most states, those in red here, calculate child support on the ‘Income Shares’ model. Nine states, the green here, use the ‘Percentage of Income’ model and three states use the Melson formula.
The Income Share model starts by adding up the combined income and then finding each parent’s share. For example if one parent makes $6,500 while the other makes $4,000 a month, so $10,500 total, with one making 38% and the other making 62% of the total income.
Then the judge is going to use the state’s child support table to find the estimated cost of raising the number of children and then divide that cost according to the income shares.
Using our example with this State of Georgia table, if the custody parent is taking care of one child and makes that 38% income share. The paying spouse will pay $780 a month in child support which is their income share of 62% times the estimated cost of $1,259 a month to raise the child.
In the states using the Percentage of Income model, child support is based on a percentage of the paying spouse’s income regardless of how much the custodial spouse makes. The percentage might be fixed, say 25% of your income, or it might vary depending on how much you make. So it might be 20% on your current income but increase to 25% if you start making less.
The Melson formula for those of you Bow-Tie nation in Hawaii, Montana and Delaware is based on a set of factors including standard of living and child needs. This is going to consider both parents’ incomes so payment is going to be similar to the Income Share model.
Legal Expenses for Divorce
Legal expenses are what really drives up the cost of divorce and forces people into bankruptcy.
Attorneys are going to start at $1,000 minimum for an uncontested divorce where both spouses agree on how to split up everything and all alimony payments. That’s a minimum and a survey by NOLO found the total cost of divorce averages $12,900 with a median around $7,500 meaning half of divorces costed more than $7,500 and half costed less.
Only about sixteen hundred of that $13,000 average was court costs and fees with the rest going to the lawyers. In that same survey, the national average rate for divorce lawyers came to $270 an hour.
So the fact that the average cost of divorce is so much higher, almost thirteen grand versus the median of $7,500 tells you there are a lot of divorces that cost A WHOLE LOT MORE!
Tips to Financially Survive Divorce
For that, I wanted to share two tips to get a cheap divorce and then an idea for financially surviving divorce.
If you want the least expensive divorce you can, you’ve gotta go uncontested. Try figuring out some kind of fair split on your assets and debts before getting the lawyers involved.
Don’t try to pressure your spouse or get unfair here because it’s just going to increase the chance they’ll change their mind and contest it in court. The average cost of an uncontested divorce is just $4,100 according to NOLO, so a savings of over eight grand right there.
If you can’t agree on a split in the assets and debts, consider getting a mediator before lawyering-up. Mediators will cost a hundred or so per hour but half the respondents to the divorce survey reported paying $500 for all-in cost. The mediator is going to play the impartial middleman to help you agree on a split in those assets, then you can go the uncontested route for cheaper attorney fees.
As for financially-surviving a divorce, it helps to have a plan before the divorce, how you’re going to pay for everything and what your finances will be like after. This is where an emergency fund really comes in handy, in case costs or support payments are higher than you expected.
Even if you aren’t paying a lot in support, your income and expenses are going to change pretty drastically. This is where you need to sit down and really budget out everything. Start from scratch to find how much you’re making, spending and how much you’re going to need to save for retirement.
The high cost of divorce sends thousands into poverty every year and destroys savings. You don't need to be trapped in a bad marriage though. Understand how much divorce costs before and after filing and be ready to get your finances back on track.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.