We all know there are inevitable costs to a New Jersey divorce. But surprisingly, there can be some financial benefits to divorce as well. In fact, some people divorce precisely for the financial benefits.
An estimated 90 percent of people get married before the age of 50, but between 40 and 50 percent of those marriages fail, according to the American Psychological Association. The national average cost of a divorce is about $15,000 per person. The exact price tag varies significantly, but some of the things that can add up include:
- Filing fees/court costs
- Attorneys’ fees
- Mediation fees
- Cost of hiring outside experts (real estate appraiser, tax advisor, child custody evaluator, etc.)
On top of this, there is the fact that you’re suddenly living in two separate households on a single income.
There are some ways to cut costs in the process, including mediation, which costs much less than a divorce trial. In general, the more things you agree on, the faster it goes and the less money you spend. Prenuptial agreements too can significantly cut down on the amount of time and expense of the process because they help to clarify the terms of the divorce.
Some opt to avoid hiring a lawyer, but this can actually cost quite a bit in the long run. This is not only because you might get a raw deal without realizing it before it’s too late, but once dissolution is final, it can be very difficult to alter the terms unless there is a sufficient change in circumstances.
How a Divorce Might Actually Save You Money
All that said, there are some ways divorce can actually benefit you financially. Some of these include:
- Easier budgeting/control over finances. Many marriages end over money fights. A divorce can bring a newfound sense of financial freedom – to save, to build up your retirement, to travel – without a huge haranguing. Being able to shift money to meet your own personal goals can be great for your finances.
- Penalty-free early access to retirement funds. Usually if you want to pull money out of your retirement fund early, you’re going to pay a hefty penalty for that. If you acquire some of your spouses retirement funds, the transfer is usually tax free. This is not to say you want to cash out and buy a boat, but it can give you some flexibility to achieve some other goals. It’s smart to talk to a financial advisor before doing this.
- More college financial aid for the kids. There is no doubt divorce is rough for any child, but they will almost certainly have a greater shot at more financial aid. The Free Application for Federal Student Aid (FASFA) requires only financial information from the custodial parent (though child support and alimony must be listed). Because divorce lowers your total income, it can put a new college student in a better position for financial aid.
- An opportunity for a financial reset. Divorce necessitates a lot of different lifestyle changes, but this can be a chance for both parties to reset and begin a fresh, positive start. Some of the adjustments both parties make – such as forgoing that large home they shared - are beneficial for them financially in the long run.
Everyone’s situation is different, and not all who divorce are going to find that there was an economic benefit. But those who do are often surprised.
What is a Strategic Divorce?
Increasingly, our East Brunswick divorce lawyers have been handling claims of so-called “strategic divorces.” These are formal divorce proceedings between couples who don’t necessarily want to separate or stop being a family, but who know that divorcing might have an important financial advantage.
Most commonly, the reasons behind a strategic divorce are to help a sick spouse or child qualify for Medicaid (which is only granted to those who income-qualify) or to help a parent to help secure more financial aid for a college aide.
We have seen this a lot in couples with one spouse battling cancer or Alzheimer’s disease or those who are parents to a child with significant special needs. It is sometimes easier to secure public financial assistance and coverage for important medical procedures and care if the person is applying as an individual and/or single parent.
There was also the effect of the Tax Cuts and Jobs Act of 2018 that spurred these discussions among high income-earners, citing the so-called marriage penalty, which is a higher tax liability for higher-earning couples who file their taxes jointly. These would be individuals with around $612,000 in taxable income in 2019. A strategic separation in that instance, the thinking goes, is that it’s better to be single for tax purposes.
It is strongly advised that anyone considering a strategic divorce talk with a financial planner as well as a divorce attorney because there are potential ramifications that you may not have considered. The financial benefits can indeed prove valuable, but it’s a situation you want to enter with eyes wide open.
Call Rozin | Golinder Law today at (732) 810-0034 to speak to our experienced divorce lawyers.