Divorce is usually painful, messy and expensive in the short run. Ask Phil Collins, who recently paid out $47 million for his third divorce. But the financial pain of divorce doesn't always end when the forms are signed, but can linger on into retirement.
The immediate costs put a large cash hit on the divorcing household. The average cost for a divorce, according to maritalstatus.com, is $20,000, and 3.6 million marriages ended in divorce in 2008. If, in the settlement, one of the couple gets the house, he/she may be forced to pay capital gains on the appreciation. Split up a 401K without a qualified domestic relations order (QDRO) and that money may become taxable as income.
The ongoing expenses, especially when the couple has dependent children, can soak up every penny of savings for years to come, and when only one of the couple works outside the home, the situation is even more dire. Double mortgages, health insurance, travel back and forth for the kids, the need to hire professionals to do work around the house that one or the other had previously done, all are a drain the monthly budget. Paying such ongoing expenses often comes at the expense of saving for retirement, too. For people working at companies that offer a match for 401K savings, the cost of not fully funding their account each year is magnified.
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