Whenever there’s a high-profile divorce in the news (this time it’s former New York City mayor Rudy Giuliani), we feel that it’s time to raise the question of how a divorce might impact your finances. I know, it’s not something that’s comfortable to think about, but unfortunately almost 50% of all marriages end in divorce. So, it’s an important topic to keep re-iterating. Divorce has huge financial implications – in fact, a divorce might be one of the biggest financial decisions you might ever make.
Divorces can be amicable, or they can be messy, but whatever the case, resolution when it comes to finances often takes time and patience. I’ve seen this happen a number of times in my years as a financial professional, with many of my clients sitting in front of me asking, “what do I do now?”
Here are some tips for how to financially prepare for and deal with a divorce.
1. Protect Yourself and Find a Good Lawyer
Patience and levelheadness are key when it comes to successfully resolving the financial questions surrounding a divorce. Having proper representation and proper planning in advance allows you to maintain those qualities. And, when it comes to divorce, having a lawyer to help you finalize everything and make sure you’re protected by solid legal documentation is invaluable.
When I talk to clients who are planning to get married, I always call out the elephant in the room: a prenuptial agreement. A prenuptial agreement isn’t something only for the mega-rich, and it doesn’t signal a lack of trust or mean that a relationship is doomed to fail. It means that both parties are looking out for their best interests as individuals and as a couple.
“For as long as you both shall live” is a long time, and nobody has a crystal ball to divine what the future might bring. Having guidelines and procedures to protect yourself and your partner in case the worst happens is important. You buy insurance for the same reason: to protect yourself and the people you care about. Having a “pre-nup” is the same thing.
If you are getting divorce and don’t have a prenuptial agreement, finding a lawyer with a good reputation for settling things thoroughly and quickly is even more important. Do your homework, get referrals, have interviews with potential lawyers, ask for verifiable track records, and vet their opinions on your situation with other professionals you already work with. Having good representation is paramount when it comes to divorce, especially if you don’t have a prenuptial agreement.
Once you’ve selected a lawyer you’re comfortable with, let them do their job. You hired a professional for a reason, so it’s important to trust their expertise. Divorces are highly personal and emotional, so it can be tempting to want to jump in or question what they’re doing. But, if you’ve fully and exhaustively vetted your lawyer, make sure you let them do their job in the interest of resolving your divorce as quickly and easily as possible.
2. Try Not to Make Knee-Jerk Decisions
Divorce can lead to so many emotions – anger, fear, sadness, you name it. But making decisions in any of those states of mind will probably lead to regret later down the line. Lean on your team of experts and make the absolutely necessary decisions first (custody of children, pets, where to live) to make the landing as soft as possible. Once that landing happens, give yourself time before rushing into any big financial decisions like buying a new house or car or taking a new job.
It’s important to slow down and be methodical in the midst and immediate aftermath of a divorce. I’ve seen people get swept up in the moment and buy a house they wind up not being able to afford or spending too much money on material possessions. But big purchases like this are always going to be important decisions, regardless of any current life situation, so any misstep is only magnified during or after a divorce.
Try not to add more big life changes like a new house, new car, or new job to the mix when you’re going through a divorce. Do your best to slow down, process, and think of the long game.
3. Get to Know Your Money and Stay Invested
Marriage is a partnership, and just like anything else, sometimes the people involved have different roles in that partnership. It’s not uncommon that one spouse handles the finances, and the other isn’t as financially savvy. If that sounds like you, and your spouse handled most of your finances, make sure you get up to speed on the basics – talk to a financial advisor, do some reading, and make sure you fully understand the state of your finances. Personal Capital’s dashboard is a great way to get the lay of the land all in one place. I’m not saying you need to understand the finer points of the Capital Asset Pricing Model or be able to determine the Sharpe Ratio of your current allocation, but knowing the basics will help you in your divorce proceedings. Make time, take online courses, read up, and work with a good advisor to avoid making decisions out of fear or uncertainty.
But regardless of who manages the money in a marriage, legal separation will always require both parties to consider finances. Whether it’s IRAs, Brokerages, QDROs, or splitting up any of the number and letter combination accounts (403b, 401k, 401a, 457a, etc), things will move, and money will change hands. Try not to make the mistake of divesting, succumb to paralysis, or tell yourself “I’ll get to that later,” because your money has to last you a lifetime. Working with a financial advisor you trust can make a huge difference here, as they can guide you through the best way to handle the assets that end up in your name after your divorce.
Ultimately, I hope you never have to apply this advice. Nobody goes into a marriage wanting or expecting to get divorced. But hopefully, if you are going through this, these tips can help you make it through in a better place financially.
Best of luck!
Disclaimer: The information on this website is for informational purposes only and does not constitute a complete description of our investment services or performance. No part of this site nor the links contained therein is a solicitation or offer to sell securities or investment advisory services, except where applicable in states where we are registered, or where an exemption or exclusion from such registration exists. Third party data is obtained from sources believed to be reliable. However, Personal Capital Advisors Corporation cannot guarantee that data’s currency, accuracy, timeliness, completeness or fitness for any particular purpose. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.