By Erin Wood
Life happens. And it doesn’t ask before it happens. People get married, and sometimes a marriage doesn’t work. Even in the best scenarios, divorce is complex and confusing on emotional, relational and financial levels, and can drag out for years in some cases.
Your financial advisor may not be the first person you call when considering splitting up, but they should be somewhere on the list. One of the concrete things you can do to help with the process and the healing to follow is to plan ahead.
Let’s look at a few financial planning issues that come up around divorce and some options to help remove some of the stress ahead of time.
Assemble Your Team
You’re going to need help down this road. No matter how badly you “just want it over with!” or even if you’re parting on the best terms, a team of professionals can save both of you time, money and headaches in the future.
Your team should at the very least include:
- Divorce/Family Law Attorney – You need a specialist in this area. You might already have a relationship with a lawyer, but divorce law is its own country. You need someone who knows the terrain well.
- Financial Planners/Wealth Advisors – Will help you both understand your options here. We recommend against sharing an advisor due to conflict of interest.
- Therapists/Divorce Counselors/Faith Leaders – Again, professionals like this can be helpful even if you’re not sure you need it. These caregivers have usually been down this road with many people, and this may be your first time.
Many hands make light work, even when that work is emotional, legal and financial work. A support team can help you see blind spots and consider potential problems before they arrive on your doorstep.
Before, During, After – Breaking it Down into Three Stages
One of the best things you can do is break down this busy and difficult time into stages. Let’s look at a few priorities in divorce financial planning issues that will come up before, during and after the fact.
Packing carefully before a journey is always worth the time and effort. Make sure you have the appropriate documents ready or easily accessible. Make sure you’re also protecting your credit rating, especially if your split is not amicable. Someone opening a credit card and not telling their soon-to-be-ex partner is unfortunate, though not uncommon.
Divorce is never overnight. The national average for the length of a divorce is 11 months. Personally, my divorce took this long and it was amicable, we had no kids and we’d been married less than ten years. Even in the “best” circumstances, divorce takes a while.
Work with your team to figure out a budget for these intervening months, it will be different than before and after the dust settles. Also, do some forecasting with your team about the long-term effects of different settlement options. Five years from now, in your own house with your own assets, what will you wish you’d done? What will you wish you’d thought about in the moment?
Make sure your will, trust, medical power-of-attorney and other estate planning documents are up to date. Legally, you could be re-married, and if your documents aren’t current, your ex-spouse could be making healthcare decisions for you someday.
Rethink retirement planning and Social Security options as well. These realities may seem far off, but changes now can reverberate far into the future.
Common Mistakes to Avoid
There are plenty of places to lose your footing here. After walking many couples through this journey as an advisor, and going through the journey myself, I’ve seen a few mistakes you should avoid.
- Closing off communication – Even if you have to talk through an attorney, make sure you’re still communicating. Small issues can bring out big emotions, so try to talk through those small issues beforehand.
- Disregarding taxes – Remember, even if you make it through divorce proceedings in record time, you will most likely still have to file taxes for the year you were together. There is also tax liability when assets change hands or get otherwise re-arranged.
- Not creating a new budget – Are you splitting one income between two households? Or separating incomes that have been combined for years? Your budget will change fundamentally.
- Assuming assets are split easily – This isn’t always right down the middle, depending on the assets you had as individuals before you got married. “Community Property” laws in certain states can complicate this further. Inheritances, if just for one spouse, can also complicate this discussion.
Many other mistakes are made during divorces, and that’s why it’s best to have a team. Professional guides who’ve been down this road before can help you avoid the potholes.
Though the divorce rate in general has gone down, divorce rates for people over 50 have doubled since 1990. So-called “grey divorce” (or “silver divorce”) is a relatively recent phenomenon, but a very widespread one.
One of several reasons this is happening is simply longevity. When life expectancy was 61 or so, you didn’t think as much about a difficult marriage at 55. Life expectancy is much higher now – you might be more motivated for change if you thought you’d live to 85. Thirty years is a long time to live in a dysfunctional relationship, and there are many more options for older people to meet someone in our culture now than in past generations.
Divorce is also more socially acceptable than in past generations. Society values healthy relationships and celebrates them. If your relationship is unhealthy or dysfunctional, a lot of people will applaud and support you for leaving that situation. Life is too precious to stay unhappy.
Women and Divorce
Unfortunately, women are particularly vulnerable in grey divorce.
The wage gap is still a reality. Women may not have made as much money and in turn saved as much money. They are also statistically more conservative investors, so they aren’t likely to take those big financial risks.
Women also often take a few years off to be caregivers to their children or ill family members. This is admirable, however, this can throw off retirement plans and social security earnings.
Hiring a good divorce lawyer is the first step, however that’s not the only person you should reach out to. A financial advisor can help you plan and prepare for the financial aspects of divorce and see blind spots you might not even know were there.
It is possible to get through a divorce with your self-esteem, finances and future intact. Waterstone’s team of experienced advisors can walk with you through this tough time.
Download our Divorce Financial Planning guide to help you start the conversation.