Getting divorced may cost more than you think – how to financially prepare for splitting up

Divorce is an emotionally distressing event, and the financial cost is often much steeper than expected.

This is especially the case for women who deferred money management responsibilities to their spouse during their marriage.

Some 42 percent of high-net-worth (HNW) women whose spouse was responsible for managing their household’s finances during the marriage did not feel they had sufficient funds to litigate the divorce versus only 12 percent for respondents who shared money management responsibilities during the marriage. That’s according to new research from BMO Wealth Management.

Because of this, oftentimes, immediate cost-cutting in areas such as travel and entertainment was warranted, underscoring how divorce can reshape not just the overall wealth picture but also day-to-day living.

Preparation is key – here are three costs to be aware of during a divorce.

Legal fees

While legal fees are at the center of divorce costs, the amount varies significantly depending on a number of factors.

Divorce negotiations can be complex and expensive and can include mediation, accounting reviews, and determining alimony and child support. All of these actions can require hours of legal fees with an attorney. For higher-net-worth couples, the complexity of assets – including investment accounts, trust and estate accounts, residences and vacation properties, art, automobiles, and other tangible assets – can greatly impact the timeline to finalize a divorce, causing fees to climb even higher.

Additionally, according to BMO’s study, 41 percent of high-net-worth women whose spouses managed the household wealth said that the divorce proceedings took 13 to 18 months. For those who were more involved in the management of their finances during marriage, only 22 percent said that the divorce proceedings took 13-18 months.

Longer timelines mean higher legal fees, and if you don’t have a solid understanding of your finances going into the divorce, there’s a higher chance your settlement will be lower than you expected.

Cost of living

Understanding your financial picture leading up to and during a divorce process is just one part of the equation. It’s equally important to have a firm grasp of your finances post-divorce.

Adjusting to a new financial scenario takes time, and what might have once been daily practice, such as eating out, shopping, or entertainment, could quickly deplete your savings now.

Many divorces also result in a home sale or relocation. There are costs associated with this, including real estate broker fees, closing costs, furniture expenses and relocation costs.

While many of these real estate costs are one-time and not recurring, it can take time to recover from these one-off items, which can start to deplete a divorce settlement within months. It’s often these big-ticket expenses that can cause the most long-term damage to a financial situation.

Professional development

After divorce many women find themselves reassessing their financial independence. This can result in reentering the workforce after years away, a decision that often requires updating professional skills and comes with tangible costs.

That rebuild often requires an up-front investment and recurring costs.

Consider the costs of tuition for certification programs, fees for career coaching, as well as the expenses of childcare. These expenditures may well result in a higher-paying job in the future, but they must be factored into your overall financial plan.

While the financial impact of divorce can reach beyond what you might have expected, preparation is the key to navigating these unknown waters. By anticipating legal, housing and career-related costs, this next chapter and transition can take place with less financial stress.

Amy Hale is Executive Sponsor for Women & Wealth at BMO U.S. Wealth Management.

MORE ON HERMONEY:

• Surviving The Squeeze: Why Corinne Low Got Divorced, Ditched Her Commute & Started Dating Women
• Divorce And The Stay-At-Home Mom: Tips For Moving Forward Financially
• How To Get A Divorce With No Money (And No Lawyer)

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