Divorce: It’s complex, stressful and ripe with negative connotations but it’s the reality for hundreds of thousands of couples every year, according to the National Center for Health Statistics.
Beyond the emotional burden of ending a partnership, divorce also comes with a slew of financial costs — from legal fees to child support to lost assets. But there are many expenses you might not be expecting that are important to budget for as well.
Hidden Costs of Divorce
“In my experience as a divorce attorney, many divorcing couples are unaware of all the costs associated with divorce,” Marina Shepelsky, attorney, CEO and founder of Shepelsky Law Group in Brooklyn, New York, says.
“While lawyer fees, child support and alimony are well-known costs, there are numerous hidden costs, such as transfer title fees, stock dividend splits, tax consequences and the costs of dividing retirement accounts,” she adds.
[SEE: 12 Steps to Protect Your Money in Divorce.]
Divorce typically requires people to divide their assets but there are other costs associated with splitting, like moving to a new home, having to shell out bigger living expenses as a single person and more.
According to Shepelsky, the important thing is to be prepared for what’s coming so you can make smart financial decisions along the way.
“Lack of knowledge can lead to unexpected expenses and financial hardship in the future,” she says.
Read on to discover eight hidden costs of divorce.
1. Extra Legal Fees
You’ve likely already invested in and budgeted for a divorce attorney but that’s not the only legal fee you might be hit with regarding divorce proceedings.
According to Shepelsky, divorcees should be prepared to handle legal fees required to make modifications to child or spousal support payments post-divorce.
2. Moving Costs
“If one or both spouses need to move as a result of the divorce, there will be expenses associated with moving, such as hiring a moving company or renting a truck,” Shepelsky says.
If you’ve been sharing a home with your partner, odds are at least one of you will relocate. On top of moving costs like packing materials and moving trucks, consider if you’ll have to replace any furniture or home goods after you divvy them up.
3. Home Refinancing
For couples who co-owned their home, there are financial implications involved with splitting up that asset.
“A shared home can be divided two ways — via a change to title to include both spouses equally and jointly or to sell the home and divide up the proceeds. Most of my clients prefer to do the latter,” Angie Spielman, founding partner and financial advisor at Manhattan West in Los Angeles, says.
If you decide to transfer ownership to one spouse, you’ll be responsible for appraisal and title insurance fees and more, Shepelsky says.
Similarly, you’ll likely end up refinancing your mortgage under the new owner’s name, which could come with higher interest rates.
Couples who choose to sell their shared homes should still be prepared for expenses like staging and repairs.
[How Much Does It Cost to Sell Your Home?]
4. Higher Taxes
Couples who have filed their taxes jointly while married got that larger standard deduction, which will no longer be available after divorce. Make sure you budget a bit extra before tax time so you can cover anything you might owe the IRS.
[How to Adjust Your Tax Withholding]
5. Health Care
Divorce also often results in higher health care costs for one or both spouses due to a potential loss of insurance.
“Divorce can take a toll on a person’s emotional and physical health. The stress and anxiety associated with a divorce can lead to increased health care costs, including therapy, counseling and medication,” Shepelsky says.
According to Katie Randall, financial advisor at Prime Capital Investment Advisors in Springfield, Missouri, divorcees should definitely build therapy into their budgets.
“This is crucial for yourself and possibly any children, depending on their ages or levels of difficulty they are experiencing navigating the change,” Randall says.
6. Child Care
For couples with children, child care expenses can add up after divorce, despite child support payments. For instance, the parent with primary custody might end up shouldering more of the burden of everyday expenses like clothes and food, or they might have to invest in counseling for the child.
“Ongoing co-parenting counseling or coaching for you and your ex-partner … is a great tool if you need guidance on making decisions for the kids without fighting — or as you wade into the new reality of parenting across two homes,” Randall says.
Additionally, becoming a single parent household could result in a need for more external child care.
“You might find the need to hire a babysitter you never needed before to cover certain times of day on ‘your’ parenting days,'” Randall says.
7. Building Personal Credit
“Many times, there is only one spouse who is listed as the debt holder and in order to move on independently, the other spouse needs to have a sufficiently high credit score to secure debt on their own to apply for a home rental, car loan or car lease,” Spielman says.
Building credit on your own can take time and investment, and you might end up taking on more credit card and loan payments than before. And depending on your creditworthiness, you might not qualify for the best interest rates and terms.
[Read: Best Starter Credit Cards for Building Credit.]
8. Increased Lifestyle Spending
Going from a family home to a single household comes with some lifestyle adjustments — including the amount you spend.
“Adjusting to a new normal of lifestyle spending — this is a big one that is difficult for many people. It’s especially hard when one is accustomed to a household income previously and needs to adjust to either one income or the fixed income of spousal support,” Randall says.
She adds that you should be prepared for some level of emotional spending — or “retail therapy.”
“I find that people can make many emotional decisions when starting a new chapter of life, especially ones that may or may not be in their budget. For example, one may want to redecorate their entire house once their ex moves out,” she says.
How to Financially Prepare for Divorce
These hidden expenses might surprise you but with the right preparation, you can still navigate a divorce with your financial security intact.
Follow these tips to financially prepare for divorce:
— Start building credit as soon as possible. “Try to do as much as you can prior to the completion of the divorce to fix your credit so that you are able to obtain credit easily and you don’t have to rely on cash or racking up high-interest credit cards and loans to live,” Spielman says.
— Create a budget. Your budget as a divorcee will likely look different from yours as a married couple, so outlining your income and expenses early after a divorce can help you make a plan to cover costs.
— Consult with a financial advisor. Because of the number of hidden expenses and intricate tax rules involved with divorce, Shepelsky recommends consulting with a financial advisor to plan for the costs ahead of you.
— Understand your legal obligations. “Speak with a divorce attorney to understand your legal rights and obligations and to develop a plan for the division of assets and liabilities,” Shepelsky says. This will also help you discover which expenses are optional and which are not.
“By taking these steps, individuals can better understand their financial situations and make informed decisions throughout the divorce process,” Shepelsky says.
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Hidden Costs of Divorce: Learn How to Prepare for Them originally appeared on usnews.com
