“Divorce is like death, but without life insurance!” As usual, our clients express their feelings more articulately than we ever could.
Here are our stories of Ethel and Desi – fictional composites of people who have faced divorce.
Ethel first came to us when she and her husband decided to divorce. As you might expect, she was sad, anxious, uncertain, eager and even scared. Most of all, Ethel just wanted the divorce process over so she could start her new life. In fact, she wanted the process over so much that she was willing to make concessions to her husband in order to just move on. “He can have everything, I just want the house and the kids!” Whoa, whoa, let’s not do anything you’ll regret for the rest of your life.
If marriage is about love, divorce is about money. Crass, but true. While Ethel was understandably emotional at times, it was our job to remove the emotion from the financial decisions we were about to help her navigate. So, we started the process with a few, key items:
1. Assemble all of your family’s financial data – assets, liabilities, tax returns, retirement accounts, checking, etc. The more you understand the pre-divorce financial position of the household, the better your negotiating position;
2. Do not cash out your retirement plan in order to purchase your husband’s half of the house – this is a common emotional mistake one should avoid for the sake of your future self;
3. Start creating your own financial identity – establish your own credit rating by getting a credit card in your name only; or take out a small loan and pay it back quickly;
4. Create a budget based on your new income and expenses;
5. Before the divorce is final close all jointly held credit cards, checking accounts;
6. Change your life insurance and retirement account beneficiaries, insure your car and home, determine how your children receive healthcare insurance and update your will;
7. Get emotional support, not just from family and friends but perhaps a counselor or a support group. Taking care of your emotional needs will help you manage the difficult, but critical, negotiation phase.
We helped prepare Ethel so she would be well-informed for the divorce settlement process. Even during that process, we helped her quantify her financial needs for after the divorce so she would be prepared to begin the next phase of her life.
Desi, unrelated to Ethel, first visited us a few months after his divorce was final. His share of the marital assets were now in his possession and it was time to think about his financial future as a single person. This part of the process can be intimidating as well, especially since financial decisions will now be made by Desi alone without benefit of his former wife’s wisdom. Here is how we helped him with his new financial life:
1. Developed a new budget based on his new, single income and expenses. It can be difficult to maintain the same standard of living with just one income while possibly paying alimony and/or child support;
2. Created a financial plan – fear of uncertainty is quite common but a plan can ease that burden. Desi has to plan to save and invest enough so he will have investment assets sufficient to provide enough income to maintain his standard of living throughout his retirement;
3. Desi was 50 when he came to us so he had less time until retirement and, in some ways, he was starting over. As a result, the margin for error was smaller, making planning even more important;
4. Designed an investment portfolio to support his new financial plan, given his new challenges;
5. Desi and his wife sold their former home and liquidated some other assets so we helped him plan for the tax consequences.
Divorce is difficult. Most of us don’t like to even imagine having to create a complete new life for ourselves. But, as with most things in life, a well-thought out plan will make the unknown a little more certain – both during the settlement process and after.