Love is Grand. Divorce is $200 Grand!
Lee Rosenberg, CFP | November 30th, 2009There has been a lot of press lately about the high cost of divorce. Not the legal fees (although those alone can be staggering enough to be deterrents) but the unanticipated expenses. Apparently there can be many surprises along the way.
According to Ron Lieber, who writes the YOUR MONEY column for “The New York Times”, the obvious first decision is whether to use traditional legal channels to resolve the major financial and custodial issues (big bucks) or take a chance with mediation (less costly). Recently, there is also a growing interest in a process called collaborative divorce, which requires civil tongues and cooperation, but can save money.
Then it gets tricky. Based on information from his readers and the Institute for Divorce Financial Analysts, the matters that are most commonly neglected are health insurance, retirement accounts, credit cards and credit history, taxes and private school/college tuition. Any one of these can wreak havoc on a budget, but their collective force can be catastrophic.
Here are some of the key considerations that should be negotiated from the start, if possible.
Health Insurance: Bottom line, ex’s can’t be on the plan. Coverage can continue (Cobra laws) for 3 years, but they have to pay the premiums and if they try to acquire their own policy and have pre-existing conditions, they may be denied. Don’t forget continued coverage for mental health too.
Credit Cards: Cancel the joint ones immediately (also get your name off the mortgage if you aren’t paying it), but be aware that if your ex defaults on loans, credit cards, etc., the creditors can not only still come after you, your credit ratings can be affected as well as your ability to apply for credit/mortgages down the road.
Taxes: Capital gains taxes from the sale of a house worth $250,000 or more suggests you should try to sell before the divorce and possibly qualify for a cap gain exemption. Overall, the after-tax value of all your assets (retirement accounts, deferred compensation, investments, etc.) should be addressed before a judge, who is not knowledgeable about tax law, renders a decision.
Other costly issues that arise down the road pertain to excessive debt, changing Wills and estates, deferred assets, education and re-training for a spouse who has to re-enter the work force, student loans and associated college costs, home maintenance expenses, legal fees (change of counsel, penalties, etc.) and Social Security.
The sad irony is that working out an amicable divorce with equitable financial terms can be near impossible between two people who have decided that their relationship has eroded to a point of no return. The key is to try to put all your cards on the table before you finalize the divorce so that you can avoid a lengthy, painful battle. A nice concept if you can get it.
To read Ron Lieber’s column, check out the link. http://www.nytimes.com/2009/11/21/your-money/21money.html?_r=1&scp=2&sq=Ron%20Lieber:%20Your%20Money&st=cse
To read the comments section (warning- it’s rough): http://community.nytimes.com/comments/bucks.blogs.nytimes.com/2009/11/13/what-unexpected-costs-did-you-face-in-your-divorce/?emc=eta2
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Tags: collaborative divorce, custodial issues, divorce, Institute for Divorce Financial Analysts, lee rosenberg, lee rosenberg cfp, personal finance
About the Author: Lee Rosenberg is the Co-founder of ARS Financial Services, Inc. As a Certified Financial Planner with more than 34 years of solid financial expertise. Lee is a registered representative of Cadaret, Grant & Co., Inc. He was also named one of the top 25 Independent Financial Advisers in the US by Rep magazine.
