The process of divorce can be emotionally painful, especially if it’s a bad breakup. But even with amicable splits, divorce can be financially taxing on both parties. Issues such as child support, spousal maintenance, and division of assets can be stressful and financially ruinous.
After nine years of marriage, Arthur Vaughn of Englewood, Colorado, got divorced in October 2003. Nearly a year later, Vaughn is still struggling to recoup from the settlement. “I have been able to save very little money,” says the 33-year-old manager for Arcadia Financial, a credit collection division of Citigroup.
Part of Vaughn’s concern is that he took on most of the debts in the settlement -one of their two homes, a 2002 Jaguar, and various credit cards. “I kept my 401(k) and my pension,” he deadpans. “She got the first home with all the equity and furniture.”
Before the divorce, Vaughn says he had about $2,500 in savings and $25,000 in his 401(k). He now has about $1,500 in a mutual fund, $1,000 in savings, $1,000 in a checking account, and about $5,000 in his retirement account. “I took out a withdrawal from my 401(k) to maintain living expenses,” says Vaughn, who was contributing 12% of his salary. As a result, his account was suspended for a year, in accordance with company policy. “I can’t contribute to it again until November 2004.”
Then there’s the financial responsibility of three children. Vaughn and his former wife, Colette, have joint custody of their son, 4, and daughter, 7. The couple also cares for Colette’s 11-year-old daughter from a previous relationship, who was an infant when they married. Vaughn pays $561 a month for child support. As part of the settlement, Vaughn had to pay out a total of $11,300 in alimony. Up until July, he paid about $600 a month.
Vaughn kept the second house, which was purchased in August 2001 for $275,000 at an interest rate of 7% ($260,000 remains on the mortgage). For more than a year, he lived in the 3,100-square-foot home. “I couldn’t afford to stay there and maintain the [$2,200] mortgage payment,” Vaughn says. This past March, he moved into a two-bedroom apartment, paying $850 a month in rent while he leases out the house. “My monthly expenses are about $3,400. My take-home pay is about the same. So, I am basically tapping out,” he says.
While the young professional says he spent the first years of his marriage helping pay off his former wife’s $20,000 in debts, he concedes, “My idea of success was acquiring nice things -a house, a car. Looking back, I was working to buy, buy, buy â€¦ to keep up.”
Vaughn is currently in graduate school pursuing a master’s in business administration. His employer is footing half of the $20,000 tuition bill. “Once I get my M.B.A. [in May 2005], I am hoping my salary will increase by 15% to 20%. I’m also getting my project management certificate to set me up for something more lucrative.” Vaughn’s annual gross salary is $60,000; as