A divorce can have unforeseen and sometimes devastating consequences for the parties' personal finances. Many times, it is nearly impossible to maintain the standard of living you enjoyed during the marriage. Familiarizing yourself with the many ways divorce can affect finances will help you prepare for the future and rebuild after the divorce is final.
Maintaining the Marital Home
For most couples, the marital home is the biggest ticket item when it comes to assets. Placing the home for sale and splitting the proceeds is not always a viable option. Additionally, couples might desire to keep the home to avoid uprooting young children. For the spouse choosing to remain in the home, this usually means refinancing in order to remove the other person's name from the mortgage obligation and generate the cash necessary to pay out equity to the other spouse. Because lenders typically offer less favorable terms to single borrowers, your refinanced interest rate and monthly payments might be much higher.
Spousal support, also known as alimony, is designed to equalize the standard of living between former spouses. In most states, courts consider a list of factors to determine spousal support. Some of these factors include the length of the marriage, the parties' education levels, whether there are minor children and each side's annual income. In cases where the incomes are unbalanced, the goal is to make them as level as possible so both sides are able to sustain themselves after the divorce. If you receive spousal support, this extra money prevents a drop in your normal standard of living while you prepare to enter the workforce or adjust to single life. For the person paying spousal support, these payments can cut into your monthly budget and possibly lower your standard of living.
Dividing the Marital Debt
Marital debt is controlled by principles of contract law, which means that a divorce agreement cannot change the terms of a debt with a creditor incurred during the marriage. Don't assume that assigning a joint credit card to your spouse protects you from creditors. Unless you negotiate with creditors to have your name removed from the obligation completely, they can still pursue you if your spouse defaults on his portion of the debt. If the separation agreement made your spouse responsible for a particular debt, your only recourse is to take him back to court for reimbursement -- after you have paid the creditor. This can be costly and time-consuming, so it's important to pay attention to how debts are divided.
In most states, child support is calculated based on the parties' combined incomes and the amount of time each parent spends with the children. Even in situations where parenting time is split evenly, one spouse is typically designated as the primary custodial parent and child support recipient. The noncustodial parent is responsible for contributing a monthly financial amount toward the children's basic needs. This obligation is enforced by the state and often cannot be adjusted unless there has been a significant change in circumstances, like the loss of a job or a serious health crisis.
Doubling Up on Everything
A divorce splits a household in two, creating a duplicate of nearly every expense. Even if one spouse decides to remain in the marital home, the other spouse must rent an apartment or buy another residence. This is especially true if the parties share custody. Courts usually require each household to have one bedroom per child, a working kitchen and bathroom, and all necessary utilities. A studio apartment is not an option. Maintaining two of everything causes living expenses to suddenly double, which can create financial strain for both sides.