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The Street
The Street
Brian O'Connell

These Are the Biggest Hidden Costs of Divorce

It’s no secret that divorce is a personal finance killer, with data showing that a marital split can easily cost $20,000 or more, and that doesn’t even account for child support and alimony.

Unfortunately, there are other added costs that result in even larger financial obligations that most divorcing couples don’t add into the mix. Those fees, charges, and payments may add thousands of dollars to the total costs of a divorce.

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“In my experience as a divorce attorney, many couples are unaware of all the costs associated with divorce,” said Shepelsky Law Group founder Marina Shepelsky. “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.”

In addition, many couples may not fully understand the financial implications of dividing their assets or the long-term consequences of agreeing to certain financial arrangements.

“This lack of knowledge can lead to unexpected expenses and financial hardship in the future,” Shepelsky said.

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The Hidden Cost of Divorce – the “Worst Offenders”

Outside of alimony and child support payments, what are the worst hidden costs associated with divorce? Legal and financial experts say these financial obligations lead the list.

“Splitting” the marital home. If one person wants to keep the marital home, that almost always involves refinancing the home, and that’s a major financial problem for divorcees.

“In today’s economic environment, refinancing almost always means higher interest rates which raises the monthly mortgage cost,” said The Right Divorce Solution LLC divorce financial analyst Mary Salisbury. “With the marital home, there are also refinancing fees, which include the cost of appraising the home.”

“Sometimes the couple decides to sell the home, so costs of sale are involved, as well,” Salisbury told TheStreet.

Retirement savings. One of the most significant and damaging hidden costs of divorce is the transfer of retirement funds.

“Not only can there be administrative costs associated with that, such as the cost of preparing the order transferring the funds and the cost of the plan administrator for the actual transfer, but there are also other costs, too,” said Sodoma Law managing attorney Penelope Hefner. “Some people are not aware that to access those funds in cash pre-retirement age can involve significant taxes and penalties.”

Additionally, splitting a retirement plan requires a separate court order.

“Preparing this order usually requires a specialist who understands both retirement plans, the language necessary in the orders, and the steps involved to get the order approved by both the court and the plan administrator,” Salisbury said.

Moving out. Another significant hidden cost of divorce can be the cost of moving.

“That’s the case whether it's the primary residence or a second home or it's the splitting of furniture, art, and other sizable assets,” said Wealth Management Group senior vice president Bret Boner. “Additionally, if couples don’t have good counsel they can trigger tax implications that aren’t considered when splitting marital assets properly.”

Business ownership costs. If there’s a business involved, it will need to be professionally valued, which can cost $5,000-to-$15,000 or more, Salisbury said.

“The business owner, who generally will be keeping the business, will have to trade other marital assets to give the other spouse his or her “half” of the business,” Salisbury noted. “This results in significant loss of retirement assets, savings, or the marital home.”

“Even worse, most business owners undervalue their closely held business,” she added.

Personal circumstances. After a divorce is finalized, there may be changes to the divorce agreement that require legal assistance.

‘For example, if a child support or spousal support payment needs to be modified, there will be legal fees associated with making the changes,” Shepelsky said.

Add emotional and physical health costs to the tab, as well.

“Divorce can take a toll on a person's emotional and physical health,” Shepelsky added. “The stress and anxiety associated with a divorce can lead to increased healthcare costs, including therapy, counseling, and medication.”

“Additionally, the process of divorce can be time-consuming and may impact a person's ability to work and earn income, resulting in lost wages,” she added.

Get Organized Before Cost Issues Arise

Financial preparation is crucial for anyone considering a divorce. Take these key steps to prepare for a divorce and to minimize total costs, Shepelsky advises.

  • Gather all financial documents, including bank statements, tax returns, and investment account statements.
  • Create a budget that reflects your current expenses and anticipated expenses post-divorce.
  • Review your credit report and take steps to improve your credit score if necessary.
  • Consult with a financial adviser or accountant to help you understand the financial implications of the divorce.
  • Speak with a divorce attorney to understand your legal rights and obligations and to develop a plan for the division of assets and liabilities.

“By taking these steps, individuals can better understand their financial situation and make informed decisions throughout the divorce process,” Shepelsky said.

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