It's tough to adjust to the financial ramifications of divorce, especially when an income that once supported one household now has to support two households. But the unexpected expenses that arise from divorce? Those can make you feel like you want to jump off a cliff.
Below are the most common expenses that surface after a split.
1. Health, dental and vision insurance: Generally a family is covered through an employer sponsored health, dental and vision insurance plan. Even if the employer does not provide dental or vision insurance, the savings from an employer sponsored health insurance plan is significant. What people often don't realize is that when the divorce is finalized, the non-employed spouse cannot remain on the "family" plan. Rather, the non-employed spouse will either have to elect coverage through COBRA (Consolidated Omnibus Budget Reconciliation Act) or obtain an individual policy.
Whether you elect COBRA or purchase an individual policy, the cost of insurance for the non-employed spouse will increase. If the non-employed spouse elects COBRA, the cost will increase because the benefit of the employer paying for a portion of the insurance premium will be eliminated. Thus, the non-employed spouse will not only pay the amount of the premium paid while married, but will also have to pay the amount of the premium previously paid by the employer. Alternatively, the premium for an individual policy will cost more because the discounts provided to group policies don't exist.
2. Homeowner and car insurance: Just like with health insurance, discounts are offered when there are many policies and/or items of property that need to be insured. Thus, prior to a divorce, a family will receive a discount for having their home and automobiles insured through the same provider. However, the premiums for homeowner and car insurance will frequently increase for at least one spouse, because either the other spouse received the home in the divorce, or there is no longer a multi-car discount.
3. Retirement: One of the most common methods for saving money for retirement is through an employer's 401(k). Although a spouse may ultimately get one-half of the value of the 401(k) at the time of the divorce, the savings vehicle of employer provided contributions ceases for the non-employed spouse. Thus, not only will the non-employed spouse have to be diligent in setting up and contributing to a retirement plan, he or she will have to understand that additional monies may need to be contributed to cover the employer contributions previously provided.
4. Taxes: It's not uncommon for one spouse to be responsible for handling the taxes, with the other spouse just signing on the dotted line when the tax returns are completed. However, once the divorce is finalized, each spouse will be responsible for handling his or her own taxes. This means that the spouse who receives maintenance (also known as alimony), will have to budget for the taxes that will be due on those monies, as well as find out if he or she should be making estimated tax payments. Additionally, the change from filing as married to filing as head of household or single could greatly affect the taxes owed in any given tax year.
5. Memberships and other "family" plans: The cost of most memberships, including gym memberships, is frequently more for a single member than proportionately for a family. Similarly, the cost for incidentals such as a cell phone is proportionately more for a single person than for a family plan.
6. Life insurance:Life insurance is often provided through employment, and can include riders for spouses. However, once the divorce is finalized, the life insurance for the non-employed spouse is terminated. Even though an individual term life insurance policy can be very affordable, it isn't affordable when the monthly expenses already exceed the monthly income.
To avoid feeling like you won't be able to financially survive your divorce, make certain that you not only take into consideration the expenses that you know you will incur after the divorce, but also those expenses that you may not be considering.