Breaking Up Is Hard to Do: Surviving a Divorce's Impact on Your Finances

June 6, 2007 Special to ABCNEWS.com — -- On the whole people take great comfort in permanence and regularity. No one gets married expecting to get divorced anymore than they go to Egypt expecting to see the pyramids crumble into sand. Nevertheless, the pyramids are eroding, and divorce rates have been steadily increasing.

Unfortunately, divorce rates are expected to climb, and they don't have the help of a pyramid restoration project to control the damage. When a divorce happens, it has a shattering effect on all areas of a person's life, including his or her financial life.

One of the most difficult things about a divorce is deciding who gets what. Spouses both have a financial and emotional investment in everything from the house to the stamp collection they kept together. People in the process of divorce usually do not feel overly charitable toward their soon-to-be ex-spouse, so their main concern is that they get what they feel they deserve from the settlement. This is why couples often focus on who gets assets and how future income will be divided while overlooking debts and loans.

It's better to sort these things out quickly and cleanly to avoid having the lawyers step in and drag out the process considerably -- which can be financially and emotionally draining. Remember, continued litigation isn't easy on you or your pocketbook.

Often, couples who engage in prolonged court battles find that the objects of contention are worth less than the emotional and financial strain of continuing to bark at each other via lawyers. For most people, some form of mediation would be ideal. That way, it is not a case of one or the other having to be the bigger person or both people fighting tooth and nail, but rather a process of agreement reached under the supervision of an impartial third party.

In many cases mediation can save divorcing couples a lot of money. Case in point: When it comes to your residence, you are usually better off (emotionally and financially) selling it and splitting the cash. With investments, however, it is advantageous if you can sign them over, as opposed to liquidating them and passing on the cash. (If you are forced to sell shared investments by court order, you will lose money in fees and taxes.)