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Untying the Financial Knot After Divorce: How to Set an Optimal Economic Course
| Posted on December 6, 2012 at 6:27 PM |
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On the Holmes and Rahe stress scale, which predicts the
probability of illness based on recent life events, only the death of a spouse is
considered more stressful and more likely to lead to physical illness than is divorce.
For many reasons—from the psychological and emotional to the practical and
financial—divorce is nearly always extremely challenging for everyone involved.
And for the non-wage earning spouse, finding
personal and financial balance can be particularly challenging. The Chinese character for ‘crisis’ is comprised of the
symbols for both ‘danger’ and ‘opportunity.’ In other words, divorce constitutes both great
challenges and also great opportunities – ones that can see you ending up
stronger, happier, and better prepared for the future than you might have ever
imagined. However, to convert these
challenges into opportunities, and to make success much more likely, it is
imperative in most cases that you don’t
try to go it alone; instead, seek appropriate assistance and support wherever
and whenever you need it.
For example, with the right kind of emotional support, be it
from friends and family or mental health professionals, you can much more
easily and gracefully move through the trauma you have experienced and
establish a new identity and an emotionally satisfying social life. Similarly,
if you find the right kind of financial support—for example, a financial
advisor experienced in and dedicated to understanding, assisting, and educating
recently divorced women—you can reestablish yourself in a pragmatically
grounded life trajectory that will attend to the immediate needs before you
(and your children, if any) and take you into retirement.
Some Crucial Divorce-Related
Financial Facts First, it’s important to realize that divorce almost always
results in a lower standard of living for the family. From paying for food and cable to paying for living
quarters and vacations, where there used to be one outlay there will now be
two. With the many efficiencies of
living together as a family no longer present, and with the many costs of
getting to a divorce agreement and finalizing the paperwork a substantial
financial drain, divorce inevitably results in everyone involved being poorer
after the fact.
Second – and this can be a particularly hard fact to swallow
– even a good, fair, collaborative settlement will often leave you, the non-wage
earner, with less money than you need to comfortably maintain your pre-divorce
lifestyle and prepare for the future. This is especially true if children are
involved, regardless of the size of alimony and child support payments. For
example, suppose $1,200 a month is awarded as child support for one child. In some months that may be enough, but in
other months it might not be nearly enough, and you will no longer have your
spouse’s (usually larger) paycheck to turn to. Additionally, while you are
expected to find employment in an expedited time frame, some divorce
settlements don’t take into full account the cost of additional education and
training.
Third, if you have not been in charge of the finances, you
may be ill-prepared for the financial and financial-related head-of-household
responsibilities. This can include
everything from handling household and automobile maintenance to overseeing
investment portfolios and, in some cases, even paying bills and balancing
checking accounts. Additionally, you may
be ill-equipped to run down and follow through on important financial details
and legal details such as the retitling of assets, confirmation of access to
online banking and trading accounts, and the revision and redrafting of key
estate-planning documents (wills, trusts, legal and medical powers of attorney,
etc.).
Finally, in major metropolitan areas such as the Bay Area, the
financial centrality of the house cannot and should not be underestimated, especially
because it tends to warp decision-making in unsustainable ways. It’s quite typical for one spouse to have a
strong attachment to the house they have lived in and to want to hold on to it
at all costs. This is easy to
understand, especially when children are involved – children who love their
rooms, their schools, and their friends and who may have never known another
home. Undertaking a rational assessment of whether the house can be held on to
without the higher wage earner’s income in the picture – and whether it’s worth
holding on to, given the expense of maintaining it vis-à-vis all the other
financial needs that will arise – is absolutely crucial. Often the house simply can’t be held on to, and in many cases it simply shouldn’t be held on to.
Three Criteria for
Finding the Right Financial Advisor Finding the right financial professional can itself amount
to a substantial challenge. Unfortunately, far too few financial advisors are truly
client-centric—that is, dedicated to providing their clients with the kind of
comprehensive advice and financial services that will make a real difference in
their lives. The following three criteria can help you
identify the right financial professional.
First, you want someone who is an understanding, patient, and effective teacher. You want to work with someone who is aware of
how difficult divorce is and who will help you take small, concrete steps in
the right direction as you build a new foundation. You don’t want someone who will pat you on the head and say, “It will
be OK, I’ll take care of everything from here.” Even if that were possible, it wouldn’t be
advisable, because part of what you need to do now is learn to master your finances
for the long run. Seek out a financial
professional who finds it satisfying to teach you new things and watch you rise
to the occasion to apply what you have learned.
Second, you want someone who understands and embodies the basic tenets of comprehensive wealth
management. Look for a financial
advisor who starts with long-term goals, needs, and dreams and works backward
from them. Your advisor should follow a consultative process, and he or she
should understand the value of a team approach – that is, someone who works
with a network of professionals that can help evaluate and work through everything
from mortgage and real estate needs to insurance and estate planning. Also, you want someone who takes a
conservative financial approach and follows the principles of investing your
money intelligently without promising “big returns.”
Finally, seek a financial advisor who comes well recommended by others you know and who is experienced in
working with divorce. Some things can be learned only by actually doing
them, such as how to tell a client that she/he can no longer afford to do
certain sorts of things – for example, going on a multiweek Hawaiian vacation
every summer – in a way that the client can hear without feeling utterly
defeated. A financial advisor who is a compassionate,
effective, and realistic advocate will come to know you well enough to be able
to lay things out for you in understandable terms while providing a meaningful
and ultimately encouraging perspective.
Building
a New Life for the Long Run
Ultimately, look to identify and work with a financial
advisor who understands what you need and who is dedicated to helping you achieve
it. To find this person, you will have to trust your head, your heart, and your
gut: Is this the right financial professional to help me (and my children, if
any) get on the right track financially for the long run? Is this the kind of
person who can help me separate those decisions that have to be made
immediately – even if I feel I’m not ready to make them – from those that can
be made in a few weeks, months, or years? Is this someone who will look me in the eye,
always tell me the truth, and always encourage me to learn more and become
better able to face whatever the future brings?
While the personal and emotional aspects of divorce are
typically the most difficult, the financial aspects often come in a close
second. For starters, make sure you take all of the following steps:
Few things are harder than divorce, which is exactly why
it’s important to find ways to optimize your immediate and long-term financial
situations. When you find a financial advisor who understands what you’ve been
through, who follows a comprehensive process, and who will be your realistic
yet creative advocate, you will have taken one of the most important steps
toward rebuilding and re-creating your life.
For a complete version of this original article, see –
http://www.ameripriseadvisors.com/jamie.g.hargrave/ |