When a person files for divorce, they expect to pay filing fees, lawyer’s fees, and other associated expenses with the legal process.
However, there are several hidden costs associated with a divorce, and failing to consider these expenses could lead to financial hardship.
Long-term costs
During a divorce, there are often lengthy discussions regarding the family home. Will one party stay in the house, or will it be sold and the proceeds divided? If one person decides to keep the home, they may need to refinance to pay the other spouse their portion. There are also fees associated with the refinancing and title transfer.
Even if the couple decides to sell, they will have moving expenses and the costs of setting up their own households.
Divorce also impacts wages. Many times, one spouse will carry health insurance through their employer. If the other spouse needs to start paying for their own insurance, it can be a significant portion of their paycheck.
There are also tax implications. Each spouse’s filing status will change from ‘Married Filing Jointly’ to ‘Single’ or ‘Head of Household’, which can place them in a different tax bracket and alter the amount of taxes owed.
Furthermore, alimony payments are not deductible for the payer, and recipients don’t have to report them as income. In addition, only one parent can claim a child as a dependent on their tax forms.
The division of assets can also have tax implications, especially if there are capital gains on any assets sold during the divorce process.
After a divorce, many people find that their lifestyle changes significantly. The transition from a two-income household to a single-income one can be challenging. However, planning for these new expenses can ensure you are prepared. Working with people who can guide you and help you prepare for a secure financial future is essential.