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5 Potential Financial Implications of a Divorce to Know About

By: Author Jeff Campbell

Posted on Last updated:

Categories Guest Posts

Divorce is a stressful time emotionally, physically and financially, which is why understanding these implications is paramount. Find out more, here…

Understanding the financial implications of divorce doesn’t make the issues go away, but it does help prepare you for what’s about to come. This can give you piece of mind and an improved feeling of control over the situation.

In this post, we’re going to list the five most common financial implications of divorce, so you know what to expect if you decide to go through with one. Take a look…

What Are the Financial Implications of Divorce?

There are many financial implications of divorce that can affect both partners and any children they have. The following is a list of the most common financial implications of divorce:

1. Losing the marital home

Studies show that around one in three women who own a home and have children lose their homes when they get divorced.

Of all the things to lose when you get divorced, the home is the most hard-fought for. People tend to do anything to keep it, even when they can’t afford it, which can lead them to borrow money and cause more financial issues for themselves.

You can have a solicitor or financial planner look at your income and decide whether you can afford to pay your mortgage. Even if your income just about covers your mortgage, you’ll need to have substantial capital to cover any additional expenses.

This capital will eventually run dry and, in most cases, it’s more worth selling your property and downsizing to something cheaper. This is a difficult decision but, if the finances aren’t there, you might have to sell your marital home.

2. Losing half your savings and investments

When you draw up your divorce settlement, savings and investments are usually split between both partners. Depending on where you live, this could be either the savings and investments accrued during the marriage or all of them.

When you’ve spent a good chunk of your life saving up say $40k, to see that reduced to 20 in an instant, minus the fees you pay solicitors and all the tax consequences, can be devastating.

If either of you own a business, the other person is usually entitled to a share of the business when you get divorced too. The court takes into account all the assets each of you hold and won’t make a distinction between a business and other assets.

Family courts do try their best not to disturb businesses, but sometimes the only way to evenly divide assets is to break up the business or sell it. Sometimes there’s the option to buy out the other partner, which would be much better than losing it altogether.

This is definitely something worth keeping in mind when thinking about the financial implications of divorce.

3. Losing each other’s income

Losing assets, such as the family home, and savings and investments, is one thing. The loss of each other’s income after divorce can have huge financial implications.

For example, researchers have estimated that divorcing partners would need more than a 30 percent increase in income to maintain the same standard of living as they had before their divorce.

This is devastating for both partners because two-income households have become the norm for most families. Living without the income of the other partner can be tricky, especially when you’re accustomed to a certain lifestyle.

4. Losing some of your pension

Similar to losing your savings and investments, you could also lose a chunk of your pension which you’ve spent your whole working life building up. There are three main ways pensions can be divided during a divorce:

  • Pension sharing orders: divide up any pensions between the couple who are divorcing.
  • Pension offsetting: the value of a pension is offset against other assets during divorce.
  • Pension attachment: part or all of the benefits from a pension go to the ex-partner when the pension pays out.

In all of these scenarios, one or both partners stand to lose a portion of their pension which can be a huge financial issue further down the line.

5. Struggling to support your children

In addition to the emotional impact of divorce on your children’s lives, there are also severe financial consequences. This goes beyond the loss of the marital home and other issues we’ve mentioned thus far.

Most children – five out of six – end up living with their mother after divorce, making the financial effects on them quite substantial. Also, three out of four divorced mothers don’t receive their full child maintenance payments from their ex.

It’s not a cake walk for the parent who don’t get custody of the children either, as they have to pay the child maintenance. This is on top of paying for a separate home or apartment, and with shared custody they’d have to pay even more expenses.

This lack of money on both sides makes for a lower quality of life for any children involved in a divorce. Instead of having two parents working together to provide for their child, they have money being passed back and forth between two people who are financially drained.

Are Your Ready for the Financial Implications of Divorce?

In this post, we’ve discussed the five most common financial implications of divorce, but there are many more out there depending on your situation.

The loss of each other’s incomes, splitting savings, paying child maintenance, and spending money on two separate properties has a knock-on effect that can impact your other financial obligations.

Depending on what assets you hold, all of them could be broken up or sold to effectively share the assets evenly. Before you get divorced, remember these financial implications so you’re prepared for them when the time comes.

Jeff Campbell
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