The Finances of Divorce

During their 18 years of marriage, Susie and Bruce had built a comfortable, stable life. Through hard work, they had achieved the American Dream: a four-bedroom home in a suburban community with safe, quality schools; a growing nest egg that included a college fund for the children; and enough discretionary cash left over to vacation several times a year.

Then they divorced. By the time the dust settled after two years of legal fisticuffs, the house was gone, as were most other assets. Bruce lived in a busy apartment complex, with noisy neighbors and a three-by-six foot balcony; Susie, at age 40, declared bankruptcy and moved back in with her mother. Their two teen-age daughters drift restlessly between Mom's to Dad's and the homes of friends, having abandoned earlier plans for college.

Divorce can be a financial disaster. When a couple decides to call it quits, it is almost always for personal reasons such as incompatibility or infidelity. The issues quickly shift to money, however, and the result can be a slugfest, even in so-called amiable breakups. Everybody loses, except, perhaps, the attorneys.

It need not be that way. Few people would ever find the divorce process fun. Nonetheless, it need not turn your life into a financial wasteland. There are ways to reduce the costs.

Divorce is expensive, as many of the more than one million couples who call it quits each year will tell you. Exact figures are difficult to come by, says Lynne Diamond, president of a consulting firm called Divorce Wizards. In an exclusive interview in 1999 with newyorklife.com, Diamond said that, "by best estimates, the average cost is about $18,000 a person."

High-conflict divorces, in which large assets are involved, can push the price through the roof, says Laura Johnson, family law consultant and author of Divorce Strategy: Tactics for a Civil Financial Divorce (Broken Heart Publishing, 1998). According to one example she cited for newyorklife.com, the final price tag came to more than $200,000. Worse, the conflict can go on for years.

One factor that is becoming recognized is the connection between the emotional pain of divorce and its impact on finances. Divorce can lead to mental depression and emotional instability. In fact, the rate of depression is nearly three times higher among divorced men and women than with married couples who have never divorced, according to a "Fact Sheet on Divorce in America," by Glenn T. Stanton. It is not uncommon for job performance and productivity to fall off dramatically between stress, lawyer meetings and time taken to build a new life. This is perhaps why, "If you hire a divorce lawyer today, there is a good chance you will hire a bankruptcy lawyer within two or three years," says Diane Sollee, with the Coalition for Marriage, Family and Couples Education. ("Why Marriage Matters: Reasons to Believe in Marriage in Post-Modern Society," Pinon Press, 1997. Web Site: www.smartmarriages.com; "After the Split," The Kansas City Star, August 16, 1998)

Why does divorce cost so much? According to Diamond, the major reasons include:

• Anger. "They have an attitude of I-will-divorce-you-to-death," says Diamond. "They try to destroy each other. The result is mutual self-destruction."
• Ignorance. Not understanding the process, the couple makes expensive mistakes.
• Speed. They rush the process. Either husband, wife or both are so eager to end the marriage or end the pain of divorcing that they make rash, hurried decisions, often with terrible consequences down the road.
• Delegation. They let the lawyers run the show. Many attorneys will attempt to wage a paper war. This can pump up their fees, at the expense of the divorcing couple.

There are ways to help keep your costs under control. While divorce, almost by definition, creates an adversarial situation, it need not become a financial disaster.

1. "Try to cooperate with each other," says Diamond. "No matter how painful it may be, try to reach your own deal, which the attorneys simply implement."
2. At the same time, unless you have few assets and no children, don't try to do it yourself. Use attorneys, says Diamond. In some states, mediators can be hired. They can save you money.
3. Put everything in writing. Make no verbal side deals.
4. Add life insurance to the equation to reduce the sense of financial loss and increase mutual cooperation. For example, it is not uncommon for a divorce settlement to legally require one party to provide life insurance on one or both of their lives. This is especially common when there are minor children in the picture. In some cases, existing policies are signed over to one party. Or new coverage is purchased, with one party agreeing to pay premiums for a designated period of time.

After the divorce, there are things you can do to protect yourself financially. These may include:

1. Revise your will. In some states, a divorce automatically voids a will. Regardless, meet with your attorney and update your will so it reflects your current situation.
2. You may want to talk to your New York Life agent about any existing insurance coverage you have and possible adjustments to the coverage. Especially if you have children, your responsibilities to them continue, and you may need additional insurance.
3. Get disentangled credit-wise. It is surprising how many people leave their credit cards in an ex-spouse's possession. Be sure all joint credit cards have been cancelled and new ones issued in your name only. Otherwise, your liability for your ex-spouse's bills will continue.
4. Review your retirement assets. It is not uncommon for a judge to divide IRAs and pension money right down the middle. Over night, your retirement assets could be cut in half. You need to meet with a professional to discuss how to rebuild.

There are very few winners when a couple divorces. The cost in emotional pain and suffering, as well as dollars and cents, can be extreme. The process can also go on for years. Still, by cooperating and learning the "rules," you both can come out in reasonably good shape. Good luck.

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