Divorce protection: Considering divorce? The 5 financial areas you need to think about now
I am a divorce mediator with a background as a financial planner,
a little unusual by today’s standard. The reason, I became a
divorce mediator is simple:
I believe that the current divorce process is often harmful to families (i.e. adversarial) and less effective than it should be.
The process? Hire (attorneys) i.e. adversarial legal experts who will in turn help their clients reach a financial settlement… which means handling many complex financial decisions.
That is why I became a mediator. To help people understand the financial side of their divorce, so they could make informed financial decisions. Mediation is so effective because a lot of sound financial decisions can be made when two people work with a neutral financial expert.
However, I also work with individuals to answer questions one-on-one for them. Sometimes their spouse isn’t willing to go in to mediation, or often I get calls from individuals, who are considering divorce and want to meet with me to help them understand their financial picture ahead of time. In this article, I want to discuss topics I go over with individuals who are considering divorce; financial things they should take into consideration.
First place to start is cash flow. How will you pay the bills in the short run? I give my clients a budget, and have them see if they can set up two households on the incomes they have now.
Debt. Where do you stand on credit card debt? I always tell my clients that cash is best if a marriage is on shaky ground; this is the time to reduce debt; not the time to put home improvements into the house, or add onto credit card debt in any way. If all your credit card debt is in joint name however, you would be wise to open another card in your name only while the offers are coming. You don’t need to charge on this card; just get one in your name only to have on hand. After divorce… you need to get rid of debt in joint name.
Do you know what your assets are? You need this information in a
good marriage, must less if you are thinking of divorce. You need
to know where you stand. You need to gather a written list of your
assets, investments, retirement plans, pensions etc…
Common questions I am asked are: “How will I make it without my spouse’s income?” Obviously, there is no concrete answer as this is a decision that depends somewhat on the lifestyle you lead. But if you can get a listing of what you have, start thinking about a budget, and meet with someone like me, and we can show you financially what you can reasonably expect to live on. Then, you can decide if it is worth it or not. Many families are two income families now, it is very hard to split-up, especially with children at home, factoring in child support payments, getting the bills paid can be a major challenge for many divorce parents today.
Another question I hear often is: “Our retirement plan has been based on the two of us being together; I don’t know what retirement will mean now, if we have to split everything in half. Will there be enough? Will I be able to retire? When?” Getting divorced is a critical time to look at this issue for many couples. If you need to make adjustments in your lifestyle, or how many years you will need to work, you need to know this information as soon as possible.
Another question I discuss very often, concerns defined benefit
pension plans: “I know my spouse has a pension, but I don’t
understand what my rights are as an ex-spouse, can you explain them
to me?” There can be major differences between one pension and
another and how ex-spouses are treated in the division of this asset.
When I work with my clients, I will talk directly with the pension
dept, get a draft of the document needed to divide the pension and
study it to see what guidelines this company or state agency uses.
In many cases, this is the major marital asset, so understanding it
is critical! Make sure whomever you are working with reads the pension
QDRO guidelines thoroughly and explains them to you, so that you can
make informed decisions regarding this asset. (for example, in some
pensions plan the pension dies with the employee, so for example if
the ex-spouse gets 50% in the divorce decree, and the ‘ retired
employee’ later dies then the ex-spouse would lose this major
marital asset altogether, knowing this should make a difference in
how you handle your settlement.) Again, with two income families,
this can affect, either spouse nowadays.
Maintenance issues are where everything gets very hard to predict.
In my area, as is common in many areas, the attorneys will tell their
clients… “I hope we get xxx judge in a maintenance case”
because this judge is either for or against maintenance (depending
on your position) … sad but true, it can come down to the person
sitting behind the bench. If maintenance is an issue in your case,
you owe it to yourself to be realistic about what the judges in your
area have been ‘deciding’ in cases similar to yours. That
is the guideline to go by. The information is public knowledge, so
if you were to interview attorneys, they should be able to tell you
this, maybe not on the spot of course, but be willing to get you this
information upon request so that you could be realistic about what
you should expect to pay or receive.
Child support differs by state guidelines. I have this information for all the states, since I work with clients across the country. (It is generally pretty clear cut and easy to calculate up front.) One big question I ask clients receiving child support: “How will you pay the bills after the child support stops?” This is really critical to think about now, because if you are just getting by with child support, just making the house payments, and you aren’t in a job that has major pay increases on the way, etc… then you are heading for trouble. I always tell my clients, it is better to make financial cuts early on, than run into a wall and be out of options. So, if you are going to be relying on child support to pay the utilities…. get a plan. The question I ask clients who are paying child support is: “How does this affect your ability to meet your other financial obligations?” How, are we going work in your ability to meet the child support guidelines as well as provide some discretionary dollars for your children and also pay your bills?
Ok, let’s say you have met with me or someone like me, or just
taken this list and worked through everything and decided, yes, I
am ready to get a divorce. I am ready to tell my spouse. I would ask
one more thing of you. You are now emotionally months ahead of your
spouse. Not only have you made the emotional decision to divorce,
you have already looked at the numbers and made some major headway
at what it would look like. Your spouse meanwhile doesn’t even
know this is coming; even if you have been shouting the ‘divorce’
word at them before. Not until you really do it; do they believe you
mean it. So, please give them a chance to catch up after you tell
them. Don’t present them with. “Honey I want a divorce,
and oh by the way, here I have the settlement all figured out for
us!” Slow down, tell them you want a divorce, and know they
will need time to accept this, deal with the grief/anger/…..
and have patience.
If you are considering divorce, now more than ever, you must know where you stand financially. Divorce is tough on everyone; the two things I tell my clients are:
1) Don’t rush, take your time, these are important decisions you are making. and
2) This is your life, not your attorney’s, or your friends, or anyone else’s. You are quite capable of making the right decisions, but you have to understand your financial situation in order to that.