Of all the financial mistakes that one can make in their life, getting divorced has got to be right at the top.
I got to thinking about this Saturday when my wife dropped off a baby gift for the daughter of a couple we had known for years.
Raj and Clara had been married for 25 years. A successful businessman who had recently sold a moving firm, he seemed set for life in the sun with some part-time work at his leisure.
Whatever went wrong, went wrong. That is not the point of this blog post. It’s rather to look at the excessive costs of a messy divorce which can quickly destroy a family’s wealth, not to mention the existing family ties that were otherwise good.
Over the years, I’ve helped with enough divorce settlements to know that from a financial basis, this is not in many people’s best interest.
As such, your best investment if you’re facing such problems is always to try and reconcile your differences. That’s extremely tough when two spouses have let them selves become polarized to the point that nothing but hatred exists. That said, considering the onerous costs that typically wipe out a family’s wealth, taking the time to invest in counselors, take time off to ideally become a wiser more amenable person, or just separating to find the space necessary to gain a different perspective on things are all preferable to going the distance in court and dealing with the following:
It’s said that two can live as cheaply as one which is why many separated or even divorced spouses separate the basement in the house from the main floor. One spouse takes each and then they switch off every year or two.
Go the route of buying the other spouse a new home, which is what happened with Raj and Clara and you can add another $300,000 to your costs. Renting of course is equally difficult financially, easily adding $20,000 a year to the family costs.
Sell the home, and split the difference, and both parties are looking for place to live, while you’re down another $15-$20,000 in real estate costs.
If you you own any investment real estate property, one party will also need to buy out the other, unless they want an ex spouse as her business partner.
Lawyers just love to get in the middle of things, find a wedge and drive it deeper. one survey found the cost of a contested divorce to average $23,700.
Obviously, the more assets you have involved the higher this price gets. You can bring these costs down through an uncontested solution.
What happens to the rest of the financial assets?
Pensions are often split between spouses. An individual with attention could find it discounted by up to 50% if the other spouse does not have one.
RSP accounts are also subject to equal distribution. Don’t forget the fees for collapsing accounts which can be substantial if the investments have just been purchased.
Finally, all savings and debts need to be equally distributed, independent of who has saved or spent.
What to try first
1. Read a book about how the other side feels. Something as simple as “Women are from Mars, Men are from Venus” will shed substantial light on the other’s position.
2. Take a course. There are a number of highly rated courses available both on improving a marriage and improving yourself.
3. Take a holiday. Get out of town either by yourself or with your spouse.
E. & O.E.