Divorce is a long and difficult process, both emotionally and logistically. It can also do great financial harm to both parties. While no time is ideal to get a divorce, certain times are better or worse financially than others. Here are five events that can affect the impact a divorce has on your wallet.

TUTORIAL: Investing 101

1. Unstable Real Estate Market
When the real estate market is soft and a glut of houses is on the market, you can burn through the equity in your home if you have to sell it in a divorce situation. On the other hand, in a hot market, you can capitalize on the value of your house and sell it quickly. The least expensive solution is to work the divorce settlement so that one spouse gets to stay in the house and the other spouse takes other assets to compensate for his or her share of the equity. This avoids real estate fees, land transfer taxes and other costs of selling and moving. (One of the most difficult things about a divorce is deciding who gets what. For more, see Get Through Divorce With Your Finances Intact.)

2. Shaky Economy
The overall state of the economy can impact the financial blow a divorce can deliver. A divorce can mean one or both spouses may have to rent or buy new houses, purchase new cars and even change jobs. In a shaky economy, all of these things can be difficult. Credit is harder to obtain and jobs may be scarce. In a robust economy, all of these necessities may be easier but large purchases, such as houses and cars, may be more expensive.

3. Damaged Credit Score
If you have a bad credit history, a divorce is only apt to make it worse. A credit report is often needed to rent an apartment, interview for a job or even open a credit card in your name. You may be unable to live the way you are financially used to living. If the split is amicable, it may be worthwhile to wait several months to a year until you can work on raising your credit score. If you are the spouse with the credit damage, try to negotiate keeping the existing house and car so that you do not have to face creditors in the near future. (Do you know how your borrowing activities affect your credit rating? For more, see The Importance Of Your Credit Rating.)

4. Having Children Under 18
Divorce becomes exponentially more complicated when minor children are involved. Custody issues must be worked out and financial support arrangements put in place. You and your spouse will have less combined income with which to support the children, as you will each have separate living costs. If you have children heading off to college, one benefit of your divorce is that they may be eligible for student loans and grants for which they might not otherwise have been eligible. Many student aid plans only require including the income of the custodial parent when assessing eligibility for financial aid.

5. Receiving an Inheritance
State laws vary on how community property must be divided between spouses in a divorce. Most, however, do not look forward. That means that future assets or income of either spouse cannot be divided and treated as part of the divorce assets - although they might change any child support order. If you inherit money from a relative or acquaintance before your divorce is final, it may become part of the marital assets. If, however, you inherit money after your divorce is final, you will likely get to keep it all. (Contrary to popular belief, inheriting assets isn't always a good thing. For more, see Refusing An Inheritance.)

TUTORIAL: Exploring Real Estate Investments

The Bottom Line
Divorce is rarely financially advantageous to either party. There are times, however, when it can have an even deeper impact on your personal economic situation.

Related Articles
  1. Credit & Loans

    Refinance Vs. Debt Restructuring: What's Best For Your Credit Score?

    Discover key differences between refinancing and restructuring debt in regard to terms, the negotiation process and effect on credit scores.
  2. Credit & Loans

    Guidelines for FHA Reverse Mortgages

    FHA guidelines protect borrowers from major mistakes, prevent lenders from taking advantage of borrowers and encourage lenders to offer reverse mortgages.
  3. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  4. Credit & Loans

    Millennials Guide: Picking the Best Rewards Cards

    There are perks a-plenty on offer, but you have to find the right plastic for your lifestyle.
  5. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  6. Credit & Loans

    Joint Credit Cards: The Pros and Cons

    A joint credit card may sound like an easy way to split the bills, but make sure you know what you’re getting into first.
  7. Credit & Loans

    Fixing Your Credit Score: A Do It Yourself Guide

    Following these five steps can go a long way toward repairing a low score.
  8. Credit & Loans

    Co-signing a Loan? Make Sure You Know The Risks

    Contractually, co-signers are just as responsible for the loan as the person actually borrowing the money. Be careful not to put yourself at risk.
  9. Investing Basics

    Should You Increase Your Credit Card Limit?

    What if you took out a new credit card and the issuing company started you off with a fairly low credit limit that hasn't been raised after the first year. Should you ask for an increase? The ...
  10. Credit & Loans

    How To Boost Your Credit Score To Save Thousands

    One of the first steps you should follow before buying a home is to boost your credit score. And how do you do that? Here, we tell you how.
RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Jamming

    A scam perpetrated by bogus credit repair firms that involves ...
  3. Furnisher

    A company that provides information about a consumer, including ...
  4. Semi-Secured Credit Card

    A type of credit card offered to individuals who carry a higher ...
  5. Mixed File

    A credit bureau record that contains more than one consumer’s ...
  6. Re-Aging Debt

    Restarting the clock on a debt’s statute of limitations.
RELATED FAQS
  1. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  2. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  3. What are the typical requirements to qualify for closed end credit?

    Typical requirements for a consumer to qualify for closed-end credit include satisfactory income level and credit history, ... Read Full Answer >>
  4. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>
  5. What are the differences between delinquency and default?

    Delinquency and default are loan terms that describe failure to make a required payment. A loan in delinquency occurs the ... Read Full Answer >>
  6. What are the differences between Chapter 11 and Chapter 13 bankruptcy?

    There are a number of differences between Chapter 11 and Chapter 13 bankruptcy, including eligibility, cost and amount of ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!