Love is Grand, but When It’s Gone, Divorce Can Cost More Than Twenty Grand
Nancy Michaels was 40, a mother of three, and a successful businesswoman when her husband of 16 years told her he wanted a divorce. Beyond the emotional cost that followed his announcement, Michaels eventually found herself shocked by the price tag as well — more than $100,000 in legal, medical and moving costs.
“I hadn’t planned for his departure,” she says. “I wish I had…Having a safety net or money set aside is smart to do.”
How much does a divorce really cost for the average American? Every situation is different, experts say. “There’s an old saying, ‘Love is grand. Divorce is twenty grand,'” says Ginita Wall, a certified public accountant and divorce financial planner. Her advice: The best time to get divorced is when you have nothing. “No kids, no property,” she says. “He takes the CD player. She takes the TV. And they drive away in their leased car.”
Every year nearly 2.8 million people go through the emotional and financial trauma of divorce, says Wall, who estimates that most marriages end in divorce before the ten-year mark.
California attorney Kelly Chang Rickert estimates that a divorce “can run anywhere from $1,820 (uncontested divorce) to hundreds of thousands of dollars. And there’s always Britney Spears, who paid over $1 million to her attorneys for her custody case.”
According to the U.S. Census Bureau’s 2006 statistics, the average American family is married, has two children, makes between $50,000 to $74,999 a year and owns a home worth about$185,000. (The numbers change based on geography. In California, homes average about $535,700, 303,000 in New York and $135,000 in Ohio.)
Using those statistics, Wevorce estimates it could cost anywhere from a low-end of $53,000 to a high-end of $188,00 to divorce. The costs include attorneys fees, financial help and real estate costs for selling, buying or renting a home once you’ve made the decision to divorce. The costs can be significantly cheaper, as little as $1,000, if the couple — usually without children or assets — agrees to forego an attorney and use a divorce kit, which costs about $200. The cost adds up with filing fees and other court costs.
But for a couple with an average income of $60,000 a year, at least one child and a home worth $185,000, the average cost of a divorce using U.S. Census statistics would be about $53,000. The price tag would include short-term marriage therapy for themselves and about 20 weeks of therapy for their child. It would also include the cost to hire an attorney, sell their marital home, purchase another at a lower value for one spouse and rent an apartment in the same area for the other.
For a couple making $150,000 a year with a home valued at $535,000, the price tag increases to an average of about $188,000 for 10 weeks of therapy for themselves, 20 weeks for their child, hiring an attorney, selling their home, buying a new one and/or renting an apartment in the same area.
“While there is no true ‘typical’ divorce, the point here is there are many hidden costs — selling your home, hiring an attorney (or two), financial advisors, a new mortgage, it all adds up,” said Cotter Cunningham, of Wevorce.
The cost of divorce increases, of course, with the amount of income the couple makes each year, the assets they’ve accumulated — from a home to retirement funds — to the number of children they have and the amount of time they’ve been married. Geography makes a big difference in the costs for emotional, financial, legal, and real estate help to get through the process, experts say.
And a divorce gets even more expensive, they say, if a spouse lets their anger get in the way of letting go. New York psychotherapist Dr. Jay Granat said seen clients take as little as six weeks or as long three years.
California attorney Michael Heicklen says his typical clients are a working husband, a stay-at-home mom, and two kids. They have between $300,000 and $500,000 in home equity, a pension and at least two cars. They’ve decided to end their marriage because they’re fighting about money, sex, or an affair.
They underestimate the cost of a divorce, particularly the women. “The average cost to litigate a contested divorce (in California) is $45,000 per side,” says Heicklen. “I’ve seen more women break down and cry in my office, after hearing my fee structure than I can count. The men generally control the finances and use that power to try and squeeze the women financially. Many say they’d rather give it to a lawyer to teach the wife a lesson than hand it to her.”
And the downturn in the economy has had a significant effect on divorcing couples, according to Heicklen. “This financial climate is a train wreck,” he says.
Cunningham suggests mediation as an alternative. “Couples divorcing in this market should really consider ways to cut costs. Mediation can reduce costs in some situations. Do your research,” he says.
Divorce financial analyst Cynthia Anderson Thompson says the reality of today’s economy is simple: “Many spouses to be divorced stay in the same home, occupying different floors, rooms until they can afford to make the financial investment in divorce. It can work OK or be a stress nightmare for all, but it’s the only way to work it out financially until both spouses are up and running.”
If both parties want a divorce and have no child or property, a do-it-yourself divorce is worth examining. Several companies provide state-specific kits (books, paper forms, software or a combination of all), usually for around $200, which doesn’t include the court filing fees. These kits will save you money, but keep in mind they will take time to complete properly.
Even with an uncontested divorce, legal documents must be filed according to state laws. If either party has any concerns about the DIY process, consider hiring an attorney to review the paperwork. If you have no children and some assets, you may be able to agree to a division of the property and hire an attorney file an uncontested divorce, which can cost from $1,000 to $10,000.
The cost of divorce becomes more complicated with children, according to The Divorced Dad’s Survival Book. “If the divorce is contested because of visitation or support issues, the cost can range upwards of $15,000 or more. The point is to be civil and work this out yourself. You can keep the money the lawyers will get. No one wins but the lawyers if you fight it out in court,” says Author David Knox.
When Katherine Buckley decided to divorce, she didn’t know anything about legal fees. Her biggest concerns were her child and the financial cost of the split. Divorce attorneys can charge from $75 to $400 or more an hour, depending on where the divorce is filed in the United States. “I didn’t have a ton of money and I didn’t know how I was going to pay for an attorney. I didn’t even know how much an attorney was going to cost me,” she says.
According to Heidi Culbertson, director of client development at The Harris Law Firm in Denver, the consult fee or retainer are commonplace for legal work. The consult fee is charged as a flat fee or hourly fee to a potential client who wants a legal consultation. A retainer is a fee that secures payment for hourly legal fees in advance. In some cases, Culbertson says, the fee may need to be replenished once it is used. Buckley was not subjected to a consult fee, but she did pay a retainer.
During her consultation, her lawyer offered her two payment options an hourly fee of $100. Her second option was to pay a lump sum of $3,000 up front regardless of how little or much time the case required. Scared of racking up a bill, Buckley chose the second option. “It seemed like the best option at the time,” she says.
Legal fees aren’t the only costs you have to worry about when you file for divorce, according to New Jersey certified public accountant Noah Rosenfarb. An attorney may suggest financial professionals to help track assets in the divorce. The costs for financial professionals can vary by state and is an add-on to the legal costs.
An attorney may want an accountant to help conduct a business valuation, do a cash flow analysis or trace the assets. The average cost of a business valuation — to find out how much a small business like a pizzeria or auto body shop is worth — can cost about $7,500, with $2,500 as a minimum to upwards of $25,000 for a full report on a larger company.
A cash flow analysis costs an average of $10,000. The purpose is to see if a spouse is getting cash through the business and using it for personal expenses without the other spouse being aware of that money. Tracing assets, according to Rosenfarb, is really used for clients who have a significant amount of money in a variety of accounts. It can cost as little as $5,000 and as much as $100,000.
California psychotherapist Tina Tessina, the author of 13 books, including Money, Sex and Kids: Stop Fighting about the Three Things That Can Ruin Your Marriage, advises divorcing clients that agreeing with your soon-to-be ex beforehand about finances and then letting the lawyer draw up your agreement is a lot cheaper than fighting it out.
CHILD SUPPORT, OTHER EXPENSES
Issues regarding children often touch deep nerves, and child support can be a source of contention in many divorces. Child support is mandatory in most states and guidelines, with most states relying on the parent’s ability to pay, the amount of time the child spends with each parent and the child’s needs.
Wevorce did not include child support in its figures for the average cost of divorce, because many of those costs would have been paid anyway if the spouses had remained married. Cunningham acknowledges, however, that living apart can be expensive when shuttling children between two homes. “Kids need to have two sets of everything, so it’s another unintended cost of divorce,” he says.
Wall, who works with women on financial planning before, during and after divorce, said education and health care costs are also issues in the cost of divorce. Many of her clients have two children in private school. After divorce they can’t afford to keep the kids in private school, but one of the parents really wants to. “Compromise is that they live in a really good school district, with good private schools. But the houses there are expensive,” she says.
In some divorces, a cost of living agreement clause is included in the divorce decree to ensure the children’s financial needs as they get older. In addition, insurance is considered so that the children can be financially supported if one parent dies. “Your settlement should spell out who will pay for common expenses that may not be included in the state’s formula,” says Wall, “such as health insurance for the children, medical expenses and deductibles, therapy or substance abuse treatment and special school expenses, such as sports uniforms and equipment and activity fees.”
“Future college costs aren’t factored into support in most states, but if you and your soon-to-be ex-spouse can agree on how you will save for your children’s education, it will benefit your children later on,” Wall says.
COST OF MEDIATION
An alternative to traditional litigation, mediation involves a third party hired by the couple to help dissolve their marriage. The mediator’s goal is to resolve the same issues that an attorney would handle, such as child custody, support and visitation, property and asset division and spousal support.
“With divorce mediation you get nuetral help, which is less likely to be adversarial,” said Katherine Stoner, an attorney based in Pacific Grove, California, and author of Divorce Without Court: A Guide to Mediation and Collaborative Divorce. Many mediators are also attorneys; others have counseling backgrounds. A mediator with legal training can help draft the actual divorce agreement. Ones with counseling experience are helpful in resolving emotional issues such as child custody, but cannot draft legal documents.
Mediators look at issues from a holistic view and consider psychological, emotional, and social issues, not just legal ones, explains Elinor Robin, a psychologist who co-runs A Friendly Divorce in Boca Raton, Florida, with her husband, David Spofford, an attorney. Both parties share the mediation fees, usually equally. And since the parties have fewer issues to resolve, the process usually isn’t as time-consuming. Most mediators require formal sessions over several weeks or months to ensure that both parties are satisfied.
The other option is collaborative divorce, a hybrid of litigation and mediation. This process demands that the couple and their attorneys be committed to reaching a settlement outside the courtroom. If a satisfactory resolution cannot be achieved, the collaboration lawyers are dismissed and the couple must find other legal representation.
The American Bar Association (ABA) has no official position on divorce mediation, but Gregg Herman, the chair of the Family Law committee said that the ABA considers mediation a conducive way to resolve family disputes and reach settlement, especially in cases involving children. However, Herman advises that, even with mediation, people should consult an attorney. And divorcing couples with complications like business valuation or complex custody issues should choose mediators who are attorneys.
Mediation and arbitration are helpful in the current economy, says California attorney Heicklen, who along with his wife, Clare, a marriage and family therapist, charge $250 per side per hour for a 10-hour minimum mediation session that costs $5,000 instead of the $90,000 per side that he says it would cost a couple for a contested divorce in his state.
Philip Mulford, who owns Mulford Mediation, said legal costs in Northern Virginia, where his office is located, are less than in California, an estimated $25,000 to $50,000 per spouse, which is why he touts mediation as the better financial option. “My mediation clients invariably tell me stories of couples they know who have spent well in excess of $100,000,” he says.
Heicklen acknowledges most couples often take 20 hours of mediation to reach a settlement, at a cost of about $10,000. Still, whether a couple spends $5,000 to $10,000 in mediation, they’re still saving between $80,000 to $85,000 in legal fees, he says. That money can, instead, be part of the settlement agreement, letting the couple walk away in better financial shape than if they had battled in a courtroom.
HOME COSTS AFTER MARKET DROP
When a couple divorces, a big question is what to do with the marital home. “Rarely does one of the parties move away while the kids are growing up. The separation is just too hard on the family,” says Wall.
One of the biggest financial issues today is the drop in the real estate market, according to Wall. In San Diego, California, for example, “the house value is all over the map, but usually in the $600,000 to $750,000 range,” she explains. “A house worth $900,000 two years ago is not sellable today. There is very little equity in the home, after sales costs, even if it can be sold.”
Divorcing couples with home equity can afford to put their home on the market, but usually don’t want to do so, according to Wall. “Most people hate to sell at the low prices they could get, so this is distasteful. As for costs of sale, I don’t see many people doing ‘For Sale By Owner’ in this tough market,” she adds. The only positive in this scenario: “I do see real estate agents discounting their fees to 4.5 percent or 5 percent rather than the customary 6 percent,” she explains.
Some couples agree to have one spouse refinance the mortgage, which can get expensive depending on the state. The national refinancing cost, on average, is between $2,000 and $3,000, which includes taxes, insurance, and interest. But in some states, like Florida, the cost is several thousand dollars higher.
Jackie Transue at Viridian Services often works with divorcing couples on refinancing mortgages. The cost, she says, can include a mortgage tax as well as costs for re-issuing a title policy versus new title, for an appraisal, attorney fees, escrow and recording fees. “As a general rule of thumb,” she recommends, “I tell clients that usually between three and four percent of the loan amount that will be financed. If we can obtain the prior title policy, get a CEMA to eliminate the mortgage tax and finance some of the closing costs, the client can walk away from the closing table with up to 2 percent of the loan amount or $2,000 whichever is lower and still be considered a rate and term refinance which will give them a better rate and terms than a cash out refinance.”
According to Thompson, one of the main barriers to refinancing a home in a divorce isn’t the cost it’s the inability of one spouse to get that financing because he or she has been out of the workforce, without an income or a solid credit score, for a long period of time. “The ex-spouse who has left the home rarely wants to remain on the mortgage because they don’t want to be on the hook for payments after the divorce. They often have their own living buying issues, wanting to establish their own new place to live and don’t want to be looked to for, in essence double mortgage payments,” she says.
Some specialty mortgage products offered by lenders target divorcing families. Some lenders, for example, will allow for someone who isn’t related to the borrower to be a co-borrower on the mortgage. Other lenders allow for the former spouse’s income to be used to refinance the mortgage if the former spouse has the money to be on two mortgages at one time. Finally, lenders also take into consideration child support or alimony as part of the refinancing agreement.
BUYING OUT A SPOUSE
Sometimes, according to Thompson, divorcing couples sell their homes and downsize, each buying smaller places with the stay-at-home spouse sometimes asking family for a loan or using her savings or retirement to make the purchase.
Another option is that one spouse buys out the other’s equity in the marital home. It used to be that the purchasing spouse had to come up with a lot of money to buy out the equity of the other spouse, and that was hard to do. “Today the problem is different,” Wall says. “With equities down: buying out the other spouse isn’t difficult, but paying the steep mortgages on your own is tough. And refinancing is less of an option than it used to be, with stricter lending standards.
Which leads us to the ever more common option: one spouse stays in the house with the children and they work out a way to share the mortgage payments. “They agree to hang onto the house jointly for a few years until the market recovers,” Wall explains.
The other spouse usually rents a place, but the costs can add up quickly, between first, last, security deposits, and moving. If you’re moving from a home to an apartment in the same town, a truck can cost as little as $100 a day, not including the boxes, packing supplies, packing the truck and paying for gas. If you’re moving from state to state, the costs quickly increase. National moving firms base their estimates on how much packing they do and how much your belongings weigh. Paul Bell recently left New York to take a new job in Florida and paid $8,000 to move his furniture.
Cunningham, formerly the chief operating officer of bankrate.com, said the cost of selling, buying and moving are significant today because of the downturn in the real estate market. “People are just having a hard time getting out from under their mortgage under normal circumstances. In a divorce, where there’s a need to sell sooner rather than later, it becomes an even more difficult situation,” he says.
Given the economic downtown, Wall says couples who have 401(k)s often borrow from them to stay afloat. Her average client has between $200,000 to $500,000 to split, in 401(k)s and rollover IRAs, on average. In California, she says, stock options are still a big issue.
“Companies that used to issue options are now issuing restricted stock instead,” according to Wall. “But a declining stock market makes options less valuable and uncertainty in whether an employee will keep his job long enough for the options to mature makes one spouse reluctant to buy out the other. So generally people just agree to split the options, and each spouse can exercise when the option matures.
The cost of therapy varies geographically and with the therapists level of training and expertise, according to Granat. The counseling sessions can range from $45 to $350 for 50- to 55-minute sessions. “It’s really not that much when you consider the other costs of divorce,” Cunningham says, “and much of it is paid by insurance.”
Most insurers cap the amount they pay per session, though. And in larger metropolitan areas, that cap may not cover the total cost of the session, according to Josie Brown, co-author of Marriage Confidential: 102 Honest Answers to the Questions Every Husband Wants to Ask, and Every Wife Needs to Know.
Therapist Claire Heicklen said many divorce clients seek short-term counseling for about 12 weeks to focus on moving on from the relationship. Long-term therapy depends on the client’s problems and can a year or longer. Heicklen, who goes by the moniker “The Divorce Coach,” offers divorce programs for women and children. The women’s program is 20 weeks and costs $3,000. The program for youngsters costs $2,000 for 12 weeks and includes counseling, education, parent conferences and a co-parenting workshop.
No matter what the financial cost of divorce is, Brown believes the emotional cost is almost always a higher price in the long run. “A divorce is like a death. It is an emotional trauma,” she says. “How long will it take you to get over it? That depends. The key is addressing the underlying issues that affected the marriage. By doing so, you’re able to put things into perspective and work through any impulses you have to repeat those actions in your next relationship.”