Okay guys, so I’m going to write about a topic no one wants to talk about–which is why we have to.  When you don’t understand something, you have the most potential to lose. Let’s talk about the connection between divorce and money.

Divorce 101

Divorce is a messy thing that can negatively affect a lot of people.  No one goes into a marriage hoping to break up.  However, speaking from someone who has enjoyed the pleasures of both marriage and divorce, let me tell you, it can also be a life-altering and enlightening experience that allows you to reinvent yourself in new and better ways.  

If you believe there are no mistakes in life, then this is one of the biggest life events that gives you a chance to reflect and reorganize –your lifestyle, your choice of partners, even potentially your geography, your parenting approach, and your job.   So, while acknowledging divorce can be very painful, let’s look at it from a practical perspective and nav.it –even if we don’t want to!!

Legal Partnerships

I have said that the only thing differentiating a long-lasting relationship and marriage is a contract that creates a legally binding partnership. Check out this post to see the legal parallels.  

This analogy cannot be more relevant when talking about divorce.  Legally, divorce is merely breaking up a legal entity (partnership) that has joint assets and responsibilities, and allocating them to one partner or the other.  Those usually include income, assets, debt, and the legal responsibility of the marriage (partnership) to care for dependent children.

Financial Implications

The reality of divorce is that your lifestyle can change very quickly, as can your financial situation.  Remember, in the U.S., marriage (and thus divorce) is governed by state laws, so state divorce laws will determine how things like custody, alimony, and asset division play out.  

Let’s look at the financial aspects of divorce:

Legal Fees Are Expensive

Forbes estimates the average divorce costs anywhere from $15,000- $20,000 out-of-pocket.  That will vary depending on the state and situation.  Either way, that feels like a crazy amount of money for people to fork over, and it only goes up if the two parties fight about it (i.e. who gets the house, child time-sharing plans, etc).   Legal fees are a massive drain on wealth that could be working for you instead.

FYI: There are subsidized services for people who can’t afford a divorce lawyer, here’s an example in the State of Washington.  You can search for legal assistance in your state too.  

People’s Standard of Living Can Go Down  

Depending on your economic situation, divorce usually means that a group of people (the typical nuclear family) living in one place on a set amount of income (dual or single income) now live in two places, but with the same set income.  Alimony and child support merely redistribute that income to cover the cost of those individuals living in separate locations.  The courts decide what an appropriate standard of living is for these individuals based on their previous lifestyle as a family and the (dual) income of the marriage.   I’m simplifying a complex process, but basically you take one pot of money and divide it up to cover two households.  This often means the person making the most money has to give some to the other person to maintain their standard of living. 

Per economic research, divorce is also the most common way people get into financial difficulties (particularly women and children, but everyone usually takes a hit).  Check out this summary of how divorce financially affects women, men, and children.

Asset Division

Since marriage is a legal partnership, the assets acquired during the marriage are subject to division at the time of divorce.  This is where more legal fees are generated (as well as fighting over topics like income distribution and child custody) because it is up to the courts to decide what is a fair distribution of assets and each side gets to present their case.  Assets = think home, cars, shared bank accounts, investments, retirement pensions, etc. 

Loss Of Joint Capacity To Grow

One of the positive things about marriage is that you have joint assets, and two people potentially contributing to the generation of wealth in a marriage.  Financially, when divorce occurs, your earning power returns to just one person and investments are divided or sold, therefore losing their overall total value.  You also have to pay extra legal fees that were probably unplanned, so your cash reserves could take a hit.  It’s unfortunate, but rebuilding wealth after a divorce is a reality for a lot of people. 

Children

This is the hardest part of divorce.  Dependent child(ren) are the legal responsibility of both partners in a marriage, and in a divorce, splitting their time between partners is required.  The courts have a large purview to decide what time allocation is healthiest for the child(ren).  There is a financial implication here, as the parent with the most time tends to be the most economically responsible for the child(ren)’s needs.  Therefore, child support and other payment structures are defined based on the child custody agreement.     

Nav.it 101

I am a huge proponent of love, and working extremely hard in relationships to make sure YOU are healthy, so you bring your healthiest self to your marriage.  I will always support couples who want to get married.  I will also always advocate for people to love and support anyone going through a divorce.  Let’s be honest, shit happens and people going through a divorce are still good people trying to survive a hard moment in their lives. 

If you view marriage as a (legally binding) partnership you tried to make work, you can also view divorce as a dissolution of a partnership in which you were an equal partner.  This gives you the right to stand up for yourself and receive an equal piece of the partnership at the time of divorce.

Bottom Line

The Nav.it bottom line on divorce is: it happens.  Just like marriage is a part of our system, so is divorce.  It can be a time of pain, but it can also be a time of rebirth.  Deciding to nav.it instead of sulking or fighting or choosing anger will help you (and your children) get through the process faster and with less suffering.  

We’re sorry you’re having to deal with it, but let’s try and Nav.it the best we can!

Resources

http://yourdivorcequestions.org/how-will-divorce-affect-me-financially/

http://www.womansdivorce.com/divorce.html

http://divorce.com/divorce-101/