Splitting Savings Accounts
Savings accounts, retirement accounts, investment accounts, etc. will all—typically—be split during the divorce process. Depending on what state you’re located in, that may mean that the marital portion of those accounts is split 50/50, or it may mean that the marital portion of those accounts will be split equitably. Splitting these accounts can have a significant impact on a person’s financial situation, especially if they are close to retirement and going through a divorce later in life. Not only do the accounts suffer from a decreased balance, but it may not be easy for you to build the balance back up to what it used to be during the marriage. When you get divorced, your household income will often decrease while the bills stay the same. This may mean that you no longer have the financial freedom to put money in savings accounts. Retirement accounts and investment accounts often grow slowly but steadily over a long period of time, making it impossible to reach its former balance given the current financial circumstances.
Selling the Home
Generally speaking, when a couple gets divorced, the home is sold and the equity is split between the parties—usually 50/50 or in a manner that is equitable. Although one person can choose to keep the house and buy the other party out of their portion of the equity, most people cannot afford to do this. If you were one of the lucky people to have scored a 2% interest rate in the late 10s, or you have a completely paid off home, you may be in for a rude awakening when you see housing costs in 2025. Since the equity is often split around 50/50, you may not end up with enough equity for a down payment that will result in an affordable mortgage. For example, if, after the house is sold, you only have $12,500 for a down payment on your own home, you may realize that on a single income, with today’s interest rates, you’re not able to buy a house. Depending on circumstances, you may be paying more in rent than you were in with your mortgage, making finances even tighter.
Child-Support and Child Care
Although the laws vary from state to state and child-care arrangements are often decided by many factors, it is not uncommon for each parent to be responsible for providing child-care during their parent time. So, if you have to work during your parent time, there’s a very real possibility that you will be responsible for the cost of daycare during that time. Having a spouse is often a lot like having a built in, free babysitter—especially if your spouse doesn’t work or is able to work a job that is compatible with your job’s hours. When you’re divorced, you may find that the cost of childcare puts quite a strain on your finances, especially if you’re expected to pay child-support as well, which can be a significant portion of your income.
Splitting Debt
If you and your spouse have debt, that will generally be split equitably or 50/50. Aside from student loans and debt that was accrued during the marriage, you should be prepared to be responsible for around half of the marital debt, though individual circumstances may change this. As previously mentioned, the decrease in household income can make paying off half of the debt much more difficult than it previously was. Even if your spouse didn’t earn an income, their contribution to the household management likely saved a lot of money (cooking, cleaning, child care, running errands during the day, etc.). Having to outsource those chores or take time off to do those chores may negatively impact your ability to pay off the debt in a timely manner. Consumer debt often has exorbitant interest rates, some approaching 30%, which can delay a pay off date even further and drive up the total cost of the debt.
Is Divorce Really the Best Option?
Assuming abuse is not a factor in your situation, it may be worth it to consider whether or not divorce is really your best option. Though it’s difficult to get data on when the average person financially recovers from the divorce, anecdotal evidence would suggest that a lot of people never financially recover from divorce. The longer you are married and financially joined to another person, the more difficult it is going to be to get back to where you were pre-divorce. While many people are able to achieve the day-to-day equilibrium that they were at pre-divorce, many people never get back to the net worth they had prior to the divorce, especially when they were married for a long time. While not every decision should be made based on money, it is worth it to consider whether or not the marriage is truly unsalvageable.
When You’ve Decided to End Your Marriage
Getting divorced can be difficult, but there are some cases where it’s in everyone’s best interest. If you need legal advice for your divorce, contact CoilLaw to set up your initial consultation.
