Divorce Costs Adding Up?

    For some, divorce is a five-letter word: shock. Some spouses never see it coming. And after that initial shock wears off, another will inevitably take its place: sticker shock.  

“I don't think I ever had a single client come to see me for an initial appointment who did not balk at the cost,” said Brette McWhorter Sember, former divorce attorney and author of "The Divorce Organizer & Planner and The Complete Divorce Handbook." “Most attorneys require a retainer up front and then bill hourly. Getting that retainer together is hard enough for most people, but coping with the monthly bills afterward can be overwhelming.”  

The financial impact of divorce also hits society hard, as well. According to a recent study from George State University, divorce and out-of-wedlock childbearing cost U.S. taxpayers more than $112 billion a year.

Whatever the costs, spouses blindsided by a divorce don’t have time to do their homework before they’re served final papers. You’d be surprised at how fast those expenses, both legal and otherwise, can pile up after the divorce.

In order to stay afloat, Ethan Ewing, president of Bills.com in San Mateo, Calif, suggests you first accurately assess your debts and liabilities, and pull a “tri-merge” credit report (a summary from all three major reporting bureaus available at www.myfico.com). “Detail and write down all of the shared and individual liabilities that exist,” he said. “Settle (or get a judgment) on how you'll allocate these liabilities.”  

You’ll also need to budget for payments, which means creating a detailed budget, using any free cash flow to pay off debts. Be sure your ex-spouse is making his or her payments too, Ewing advised. “There are some very important implications if a spouse does not meet his/her end of the bargain on liabilities allocated through the divorce proceedings.”  

If you owe back taxes, be aware that the IRS does not have to honor a decision from a divorce judgment. Make sure that your spouse does not create a tax liability for you that you are unaware of. For jointly held credit cards, and for any other debts incurred during the marriage in community property states, you have shared liability, said Ewing — meaning you also share any potential negative credit rating impact.  

“If your spouse does not make payments after the divorce, it could come back to haunt you and your credit rating,” he warned. Remove your name from joint accounts or better yet, close accounts that have no balance.  

Finally, it is imperative that you rehabilitate your credit and financial health as soon as possible. Begin a savings plan to accumulate wealth, and reinvest in any proceeds/equity that come out of the divorce proceeding, recommended Ewing.  

“If you find yourself in trouble during this stressful time — in which you must make many financial decisions — seek help immediately from a reliable, professional debt resolution firm.” But make sure that this type of firm operates on the consumer’s behalf, and is markedly different from credit counseling, debt consolidation and debt management firms, he added.  

Spouses who find themselves unable to afford the cost of divorce should consider mediation — a less expensive and less combative alternative to court battles. Linda Y. Leitz, CFP, EA, founder and co-owner of Pinnacle Financial Concepts, Inc. in Colorado Springs, Colo., and author of "We Need to Talk: Money and Kids After Divorce," advised spouses to keep the lines of communication open. This can make the divorce — and the years of co-parenting after the divorce if kids are at home — much less expensive, she noted.