Divorce Can Cost You Over And Over
Hidden costs abound when it comes to divorce and can devour previous dollars. One little-discussed but very real expense is the cost of getting the children to and from each parent in shared custody situations.
“Make sure you document who is doing the dropping off and picking up,” says Di Santo, who drives a seven-passenger Ford Escape, and noted that with gas prices tipping $4 per gallon, the cost of shuttling children back and forth adds up quickly.
Other covert costs include counseling for spouses as well as children and the additional expense of extended day care, should parents needs to increase their work days to make ends meet.
Coming up with a post-divorce financial plan is key. For some, a one-time settlement may have to last the rest of their lives. It is important to come up with a plan to figure out how to cut expenses while making the most of those resources.
Violet Woodhouse, a California-based family law attorney and author of "Divorce and Money", says divorce is really about managing risk both in terms of handling income from spousal or child support as well as dividing a portfolio of investments.
“When we have child or spousal support, these are very flimsy forms of income, because they can change,” says Woodhouse. “They end at death and yet the need for that income doesn’t change. The other part of that is disability because one can become disabled and in fact, the younger you are, you are more at risk for becoming disabled than you are for dying.”
Woodhouse advises those dependent on these forms of revenue to shift that risk to an insurance company by purchasing life insurance and loss of income or disability insurance.
“Very often when people are awarded spousal or child support, they’re not planning for when that ends—if they’re awarded a stream of income on a monthly basis, if they do not set aside funds that will be there to draw on when that resource ends,” Woodhouse said.
Stocks, bonds and mutual funds should not just be divided by default, cautions Wall. Even if the instruments might be valued equally, one party is usually less tolerant for risk and that should be taken into account when pulling apart a portfolio. Likewise, if one investment has a gain, while another has had a loss that should be distributed according to which party can best manage the tax consequences.
By going into divorce with eyes wide open, recognizing the costs and potential financial challenges that can occur, spouses can make smart financial decisions about how to proceed and plan for their single futures.