What untying the knot will really set you back
We all know that the mental toll of getting divorced is enormous. Even if you're on your third divorce, there is always emotional baggage that sometimes needs more than a few stiff drinks to unload. But what about financially? Between the lawyer fees, alimony payments, and everything in between, sometimes the financial cost of a divorce can hit the parties just as hard as the emotional cost.
Double The fact is that when two people separate, they are creating a new income hole that needs to be filled some way, some how. Now, there are new rent or mortgage payments, grocery and cable bills, and more. And even if both parties are working, one of them is going to be giving the other money to keep those bills paid. Will that party be you?
Are You The Resource Spouse? Usually, when divorces are being mapped out, there will be two parties: the resource spouse (read: the one with money) and the non-resource spouse. In the scenario painted above, more often than not, the judge will make sure the non-resource spouse will be taken care of. One common formula is that the resource spouse gives half his salary minus 40% of what the soon-to-be-ex makes. And that's not even accounting for child support if kids are involved.
Taxes There comes a time in every pending divorce when accounts become liquidated. In the heat and fury of a divorce, not even a 401(K) is safe. However, in that moment, no one thinks about next year, come April, when the taxman asks for his share. Liquidating accounts could cost you up to 15% in Capital Gains taxes, and if you're not part of the rising movement of Greying Divorcees, early withdrawal penalties add another 10%. Think about that when deciding whether to negotiate your retirement account or high-end car in the settlement.