Most people are prepared for the obvious financial consequences of a divorce – for example, paying alimony and child support or splitting the house and cars – but what about the less obvious financial consequences? Preparation is a key to successfully managing your family finances, so don’t lose the key at this critical moment.
Divorce is already bad enough for your purse or wallet: But according to the National Bureau of Economic Research (NBER) after a divorce, household income drops by up to 45%. “Overall, the authors find that the family-income costs associated with growing up in single-parent families are not temporary, but largely persist until a marriage or remarriage occurs… Further, if family income does play an important role in determining a child’s later success in life, then policies that encourage two-parent families may be justified.”
Losing health insurance
Most people take group health insurance for granted because it is invisible: the premium is deducted straight from the paycheck and you may never see an actual bill when you go to the doctor or hospital. There are very few things that can terminate a group health insurance plan immediately and without notice, but divorce is one such instance.
If you were a non-employee spouse, divorce ends your eligibility to be on the policy in almost all instances. Eventually you will need to find alternate coverage, but there are some options in the short term:
- COBRA: In most cases, you can elect to continue a health insurance policy for up to 90 days after loss of coverage. The major disadvantage is that the premium is often much higher; however, the premium is usually much less than a hospital stay.
- Legal separation: In some states, you can legally live apart from your spouse while technically remaining married, thus remain eligible for benefits as a non-employee spouse. Some people have moral or religious objections to divorce or cannot meet the residency requirement for divorce. Some people do remain legally separated in perpetuity; however, the vast majority of these cases are sooner or later converted to divorce actions.
Controlling legal fees through mediation
Putting an average price tag on a divorce is like putting an average price tag on a new car. Just like no two cars are priced alike, no two divorces are priced alike. The one constant between both is that they are almost always much more expensive than you originally anticipated.
Because it is an accelerated and abbreviated process, mediation can significantly reduce legal expenses in many cases.
- Accelerated: Parties may have to wait months for a trial date, but mediation can sometimes be scheduled within a few weeks. The fewer hours your attorney has to work, the lower your legal bill.
- Abbreviated: Mediation is essentially a mini-trial. Instead of a parade of fact and expert witnesses, typically only the parties and lawyers appear at the mediation session.
By being prepared for huge legal bills and lost health insurance, you can avoid two hidden financial consequences of divorce. But as the NBER study shows it is better to for everyone involved if you can avoid divorce altogether. Consider family counseling, according to CNN there are 9 Keys to keeping a marriage healthy which include health, finances, flexibility and sex among others. Although it may not always be easy, a healthy marriage is worth fighting for. If your marriage is struggling you might find this book by Howard J. Markman helpful, Fighting for Your Marriage: Positive Steps for Preventing Divorce and Preserving a Lasting Love.
As we’ve said, divorce is expensive but interestingly, one of the major contributors to a failed marriage is money problems. According to Crosswalk dealing with financial issues together can help prevent divorce. You can also get a Free Personal Debt Consultation here.
You might also enjoy:
- Why You Should Discuss Finances Before Saying I Do
- Money Moves for a Happy Marriage
- Money Potholes on the Marriage Road
- Don’t Drown in Your Own Debt!
- Filing for Divorce – Prepare Wisely to Mitigate the Financial Fallout
Image courtesy of Ambro / FreeDigitalPhotos.net.
