Financial Impact of Separating to Two Homes

Summary:  For most couples, divorce or legal separation means separating from one household to two different residences. The financial burden is doubled (sometimes more than double.) Most couples underestimate the cost of two separate residences. Try to live under one roof as long as possible.  Don't move to to a residence that you cannot afford.

The Change from One Residence to Two

Divorce and legal separation results in a change from one household to two. After the separation to two households, parenting must be maintained for the children and the financial strain is doubled. Both parents attempt to maintain a household which is about equal to the one household they had before the separation.

Don't move to a residence that you cannot afford.  (Many people do.)

Most Couples Underestimate the Cost of Separating to Two Residences

In many cases, financial difficulties are present before the move. When a separation is expected, one (or both) prepares to move and may hide money and increase credit card debt. After the separation, the financial needs are greater because two separate households must be supported. After a divorce or legal separation, often one of the parties must begin paying a high health insurance premium which was not necessary prior to the separation. As a result of financial problems, insecurities, anger, and fear in connection with the separation, high legal bills are often incurred. In most cases, the house must be sold because neither spouse can afford to refinance it and pay the new mortgage. Often the house equity must be split between the spouses. Sometimes retirement plans are liquidated to pay off credit card and other bills. Additional income tax must be paid on the liquidation. (But this is not advisable.) Child support and maintenance (alimony) must be paid.

Tip: Try to live in one household as long as possible. Generally no child support or maintenance (alimony) will be ordered until the separation to two separate households. Since both parents want the two “new” households each to be adequate to house the children, neither party can realistically rent or purchase a small 1 or 2 bedroom condo or small house.

Additional day care expenses may be incurred, since both parents will likely be working more hours.

Credit card use should be only as the parties agree. Credit card use should be avoided if at all possible. Or each party should agree to use separate cards and be responsible for their payment.

If possible, close joint credit card accounts. Avoid letting one of the parties run up credit card bills which might be allocated 50 - 50 in the divorce settlement or court orders. However, each of the parties should be able to keep one or more credit cards, so that after the separation if final, both will be able to obtain car rentals, hotel reservation, airline tickets, or have a cash cushion in case of a financial emergency.

So in other words, divorce and separation often means great financial difficulty for both parties.

If Bankruptcy Provides an Option to Get Back on Track, then Consider It

Sometimes the debt must be eliminated through a bankruptcy filing. Under the new federal bankruptcy law which went into effect on October 17, 2005, debts allocated in a divorce proceeding can no longer be discharged in a Chapter 7 bankruptcy. Therefore, any bankruptcy filing should be done before the divorce is filed or completed.