The True Financial Cost of Divorce (And How to Prepare)

Erin: Jordan, good to see you. A really important topic today, getting divorced may cost you, how to prepare financially. Getting divorced is not easy, not emotionally, not financially, and it’s often much more expensive than expected.

So preparation is key. Let’s talk through three costs some people might not take into consideration.

Number one, the legal fees. I think we’re familiar with this one, but you’ve got to prepare because according to Forbes, Average divorce costs $15 to 20,000. Contested cases can exceed $100,000. And how do you prepare for this huge variable?

Jordan: It’s a lot of money, right. It’s not as easy to send in a document and everything is done, right? There’s a lot of headache, emotional stress, but these legal fees are, you know, $20,000 baseline could be over $100,000 based on the complexity.

So what you need to do is have advocates. You need to have close friends or maybe you know someone that has gone through this. And a lot of times people rely on kind of a partner or financial advisor, their to guide them through the process, to give them direction, to plan for these extra costs, but also hold their hand through the entire way to make sure that they have someone to rely on so they make wise decisions. Because I’m not trying to bash attorneys, but some attorneys in emotional states can really charge a lot of money and take a lot of money out of those divorce fees.

Erin: Yeah, you need to consider that for sure. And I know that you work with a lot of high-net-worth clients. I’m sure that cost legal fees skyrockets for those clients, especially when there are more assets or businesses involved.

Jordan: When you have a big business or more assets, it can get messy, maybe multiple houses as well. Who’s going to get what house? And those, that 100,000 might be in the cheap end, honestly, depending on what’s going on and how long this goes out, because it could go on for years based on the complexity. Again, horrible thing, divorce, right?

But sadly, percentages wise, over 50% of marriages end in divorce. Some things we kind of talk through people, you know, is maybe doing a post-nup. Maybe they’re doing a new business So there’s things that change in their life and maybe they want to just, hey, on good terms that say, hey, if this something happens, this is what we’re preparing for, just in case everything goes smooth and clean.

Also, I’ll go a little bit sideways here. Like what if you really care about your kids and you guys got a good amount of assets, you do a post-nup just to make sure, say your spouse, say you get divorced or pass away, say your spouse doesn’t marry somebody else and that money you thought you were going to your kids is actually going to be spent by that that’s not blood related, that could wipe out a nest egg too. So we got to make sure we’re proactive in this approach and pay the least amount of those legal fees.

Erin: Yeah, and there’s so many different variables there. All right, next we have cost of living. Understanding your finances before and immediately after divorce is really important. Divorce often means moving from one household into two. You’re not sharing those expenses anymore, so all of those costs go up.

Jordan: There’s A domino effect. So obviously when you’re admissive of a divorce, you get a divorce, you’re going to usually split up a different home. So now you don’t got one mortgage, you got two mortgages, you got two utility bills, you got two grocery lists potentially. There’s a lot of moving pieces that happen when you do that cost-of-living increase when you lose a spouse, or not lose a spouse, but get a divorce, I should say.

But when you do get a divorce, you actually go from a married filing jointly tax status, that next year to a single tax status, which I’m basically effectively saying your taxes double because you have those lower thresholds in the brackets and that affects a lot of people. So cost of living usually increases. Your taxes sometimes can double. So you need to make sure you plan ahead on these things. And usually a good attorney will know these upcoming costs and make sure they negotiate that inside the plan. But this is something we advocate for our clients with as well.

Erin: All right, next we have professional development. And here we’re focusing kind of on how divorce affects mostly women. According to Investopedia, women’s income can drop by 20%, often prompting return to work or need to update skills. So what should somebody be thinking about if they need to increase their earning power?

Jordan: Yeah, they got to maybe take continuing education, plan for these things, kind of network and use their advocates to see kind of what is the best opportunities for them. Because sadly, a lot of females have to go back to work or have to work more after a divorce. And we want to make sure we have a plan for that. One thing as a firm, we create a plan, overall financial plan. And sometimes, sadly, some clients of ours, they did get a divorce.

So we kind of split that into two different advisors. So there’s no conflict of interest. And each of them had a separate plan. So when that divorce was finalized, everyone knew they’re going to be okay. They knew what they make. They know that if they lost that extra income, how are they going to replace it? So you need to have a plan because that plan will give you peace of mind. And sadly, that does happen.

Erin: You bring up a really important part though, Jordan. Having somebody like you in the room with you or with, your spouse lowers the temperature, helps keep it to, what needs to be discussed. So just having, again, like you said, an advocate with you at that moment, I’m sure it can be really a load off for people who are going through this. If somebody would like you to be in the room with them, make sure that they’re taken care of during this very emotionally charged event. What’s the best way to reach you?

Jordan: Yeah, you can call our main number, 847-499-34434. We can just be a listener. We can give you some good guidance.

And sometimes, to be frank, some people aren’t sure they’re going to get divorced or not, and they still meet with us. We kind of create a financial plan, but in that financial plan, we put contingencies that they do get divorced, how we can protect both spouses. Happy to do that for you.

Erin: Jordan, thank you so much. And for everybody listening, if this is you, please stand by for the QR code at the end. Jordan, thank you.

Jordan: Thanks, Erin.