The 42% financial hit of divorce and how to recover from it

financialpost.com:

By Ted Rechtshaffen and Michelle Hung

Life does not always work out as planned, so adjustments are often needed, but one of the biggest unplanned, but not rare, situations is a marriage breakdown.

Divorces can result in an estate value being 42 per cent lower than if the couple stayed together. That may seem exaggerated, but think about it: total expenses significantly grow with two households to maintain; there arereal estate commissions if a home is sold and possible mortgage penalties; and real estate and other investments may be sold at a lower price due to the forced timing of a sale, not to mention potential early capital gains taxes.

The cost of the divorce itself is also sizable given all the legal, mediation, accounting and actuarial fees. Moreover, the emotional trauma can take a toll.

In the United States, 41 per cent of first marriages will result in divorce, as will 60 per cent of second marriages and 73 per cent of third marriages, according to Pricewaterhouse Coopers International Ltd., National Research Group Inc. and Snap Inc.

Few couples, however, plan for one in advance. Can you imagine a financial planner sitting down with a 43-year-old couple who have been married for 10 years and the husband says, “Can we run a scenario showing what it looks like if we get divorced?”

Every situation is obviously different, but let’s use a 50-year-old couple, Sam and Jennifer, as an example. They have 14-year-old twins and a $2-million house, with a $500,000 mortgage, that was bought during their 19-year marriage.

Jennifer’s investments, savings and pension earned and accumulated during their marriage total $500,000, while Sam’s assets total $700,000. Sam is an engineer making $220,000 a year at a private company;