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The Hidden Costs of Divorce: Don't Overlook These Expenses

Divorce is not cheap. But by planning for some of the routine costs of divorce, you can begin to create a budget for what it may cost you. Without knowing how the judge will divide your property, it will be hard to plan for exact amounts. Estimating income, expenses and the tax implications of your divorced status will help you plan your budget.

Cost of Divorce

You should plan for legal costs, including anywhere between $100 and 450 an hour for a lawyer. Most lawyers will ask you to pay them a retainer of $500 to $10,000 to handle your divorce. The attorney's hourly rates, as well as photocopying costs, court fees and phone calls, will be deducted from this retainer. Lawyers bill in fractions of an hour, and most have a minimum billing unit (i.e., 15 minutes), so quick questions can really add up. Costs will be lower for uncontested divorces. The more contentious your divorce, the higher your typical divorce costs.

Estimating Income

These are the steps to estimating your monthly income after your divorce:

  • Write down your monthly net salary or wages
  • Add the monthly average of any bonuses, commissions, tips or other earnings above your regular pay
  • Add or subtract any court-ordered alimony payments
  • Add the monthly child support payments you receive
  • Add any interest or dividend income; deduct estimated income taxes

Estimating Expenses

Estimating expenses is difficult because you don't know what your actual expenses will be after the divorce. Use current bills and canceled checks as a guide. You can also call service providers such as utility and insurance companies for an estimate. The following is a guide of the categories your expenses will fall into.

  • Household: Mortgage (including taxes or insurance), rent, gas, electricity, water, phone, cable, food (both groceries and dining out) and lawn care
  • Automobile: Car loan payments, license and registration renewals, insurance
  • School: Tuition costs, school supplies, field trips and yearbooks are all potential school expenses
  • Health care: Monthly premiums, copayments and deductibles, prescription medicines
  • Credit cards and loans: scheduled payments on credit cards, department store cards, and loans

Divorce and Taxes

Be sure to be aware of how your marital status will affect your tax returns. If you are still legally married, you can file a "married filing jointly" return. Once you are divorced, you will file a single or "head of household" return.

You can file a head of household return if you haven't lived with your ex-spouse in the past six months, your home was the main home for your children, you paid more than half the cost of keeping up your home for at least half the year, and you can claim an exemption for your children. Only the parent with custody is entitled to the exemption for children. The worth of this exemption varies by income, so check with an accountant to see whom it benefits more. You may be able to "trade" it with your soon-to-be ex-spouse.

If you are receiving child support income, it is not taxable. If you are the one making child support payments, they are still not tax-deductible. Alimony is the opposite; the payments are tax deductible for the spouse paying, and they are taxable for the spouse receiving.

Property Transfers

There are no tax gains or losses associated with transferring property during a divorce; however, you may have to file a gift tax return.