Expected: Legal fees and child/spousal support.
Not expected: Double the items for kids now living in two homes, loss of discounts for shared expenses such as car insurance, cell phones, cable, etc.
When do people find out about this? Most often only once their marital breakdown has forced them to face financial realities.
There are many articles and much research about the costs of divorce, but it's the costs of life after divorce and the impact on lifestyle that couples should be considering more closely before making a decision to split -- especially if working it out is at all an option.
I've seen a growing number of people coming into mediation who have made the decision to separate and are wrestling with how to deal with all the unexpected financial realities to move forward -- a trend that is growing due to enduring job instability and the rising costs of living.
Part of my role in the separation process is helping people become aware of what their life will look like after they divorce. This means awareness of a new lifestyle now that the same income needs to support two homes instead of one.
Most couples have a fantasy that they'll be better off without the partner they're not happy with and they'll be able to have the same house, same car, same lifestyle -- just without the partner they no longer want to be married to. However, this just isn't realistic.
Divorce can be a three-year (or longer) process of ongoing litigation and associated costs, not to mention the emotional wear and tear on every member of the family. But the cost of life after divorce is really based on the costs associated with parenting as well as the system of taxation in Canada.
If parents equally share responsibility for their children they can share tax deductions. If the kids live with one parent more than 60 per cent of the time, the financially supporting spouse doesn't get the deduction in the same way.
It's the children who suffer frequently from separation and the money spent on them is reduced frequently to make separation work. The costs once shared for the kids' activities go to cover the cost of two different residences.
Specifically, where children live will affect the amount of money people have left over to look after themselves for two reasons:
1) If children are residing primarily with one parent, the other has to pay child support which comes from after tax income and that means by the time they've paid their taxes and support payments there often isn't a lot of money left over for typical day-to-day expenses.
2) It impacts the parent who is looking after the child(ren) as the primary caregiver as they frequently can't work fulltime due to the responsibilities they now have on their own -- such as daily pick up, drop off, and the need to manage the household from groceries to doctors appointments. If living arrangements are shared, both parents may be impacted equally regarding work and responsibilities.
Couples considering separation should do very detailed weekly, monthly and yearly financial budgets to understand what their current expenses are and may be in the future, including where they can cut back in how they spend their money:
• How many of their expenses are only possible if shared?
• Is lifestyle driven by the income of one partner only?
• Does either partner have an inconsistent work history or a career that makes planning a virtual impossibility?
Frequently, when couples separate, their expenses increase by $20,00 to $30,000 a year due to supporting a second household. This includes loss of discounts received (i.e multi-car insurance discounts), and the need for multiple items for children at two homes (i.e. computer, internet, clothing, etc.), as well as the possibility of child support payments and spousal support payments.
If a couple looks at their budgets and realizes that separating is in fact a financial impossibility they have a few of choices:
1) Find ways to cut back expenses. Frequently this comes from the loss of what they do for the kids (programs, camps, etc.).
2) Go for marital counselling and learn how to create a relationship that will allow them to create a new way of working positively together in their marriage.
3) Decide to co-exist amicably under one roof as a separated couple and re-visit their situation when the kids are older.
Trying to get the same income to support two homes instead of one is the financial proposition of divorce -- plus the added costs of the divorce process itself.
I'd recommend all couples considering marriage take a pre-marriage course, to flag some potential hot spots that may come up and address them before hand. Either to resolve or determine before the fact whether they are workable.
After the fact -- whenever possible -- the first thing a couple considering separation should look at is whether the marriage is at all repairable. Naturally this depends on the factors involved.
A healthy divorce is one where both parties are able to move forward in a mature way without hurting the other party: they let go of the marriage they had and the emotions connected to separation. The better they do emotionally, the more effective they can be in making their financial plans.
When financial struggle is on the horizon, the dream of a happy, healthy post-divorce life is drastically reduced and may result in trading one state of unhappiness for another. Starting to examine finances early in the separation process will help determine an easier path and a realistic outcome.