A Bad Divorce by Ed Maguire

Financial Steps To Take When Considering A Divorce

in Financial Planning by

Divorce isn’t exactly something that generates warm and fuzzy thoughts but, according to anecdotal statistics, it’s something that “half of all marriages end in.” Filing for divorce is one of the biggest decisions you might ever make. It will affect every aspect of your life, your finances included. Financial decisions are tough to make as is. If you add in the stress of a divorce and adjusting to a completely new way of life to the mix, the pressure just multiplies.

There you were, plugging along and planning for the same future to be shared when all that changes in an instant. Now, you have Qualified Domestic Relations Orders (QDROs), alimony, child support, legal bills, and a new life filled with decisions, purchases, and plans you thought you only had to make once. Things are messy; emotions are running hot. Remorse, anger, sadness, frustration: these things are now part of your daily life and will be for an indefinite period of time.

Resolution takes time and patience and levelheadedness will be key things to maintain. I saw it happen in my personal life with my own parents while I was close enough to adulthood to understand how it all was happening (I was 18) and a number of times in my years as a financial professional with many of my clients and customers sitting in front of me asking, “what do I do now?”

Here are some tips on how to rise above the fray and to avoid making mistakes that could cost you dearly in the long run.

Protect Yourself and Lawyer Up

Remember when I said that patience and levelheadedness will be important? Well, having proper representation and proper planning in advance allows you to maintain those qualities. When it comes to divorce, handshakes and oral agreements are worth as much as the paper they’re printed on (hint: none). Planning for the future starts at the beginning.

When I operated my own practice as a brokerage advisor and talked to couples planning to get married, I would always call out the elephant in the room: a prenuptial agreement. One of my favorite comedians, Louis CK, said in one of his stand-up specials, “Exactly zero happy marriages end in divorce,” and he’s absolutely right. A prenuptial agreement isn’t something only for rich people. It does not signal a lack of trust by either party and does not mean that a relationship is doomed to fail. It means that both parties are looking out for their best interests as a couple.

“For as long as you both shall live” is a long time and there is no crystal ball. Having guidelines and procedures to protect yourself and your partner in case the worst happens is important. You buy insurance for the same reason. You want to protect yourself and the people you care about. Having a “pre-nup” is the same thing.

In the absence of a prenuptial agreement, find a lawyer with a good reputation for settling things thoroughly and quickly. You need to do your homework, get referrals, have interviews with them, ask for verifiable track records, and vet their opinions on your situation with other professionals with whom you already work. Having a good representative means a lot because when it comes to your future, you don’t want to leave anything on the table.

Once you’ve selected a lawyer you’re comfortable with, (listen up as this is important) let them do their job. You hired a professional for a reason and that reason was not to second guess their every decision or to do their job for them. If you’re not satisfied with their performance, fire them, but don’t meddle. You’ll drive yourself crazy if you do. Patience and levelheadedness, remember? You’ve hired a lawyer to fight the fights for you and to keep you above the situation so let them do just that.

Avoid Making Any Rash Decisions!

You’re angry, you’re frustrated, you’re heartbroken, you’re (fill in the blank with a feeling/emotion of your choice). Let me assure you, making decisions out of any of those states of mind only guarantees that you’ll probably regret said decision later on down the line. Rise above the fray. Make the absolutely necessary decisions first (your kids, pets, where to live, etc) and make the landing as soft as possible. Once that landing happens, let time take its course and allow the situation to calm down  before rushing into buying a new house or new car or taking a new job or even dating again.

Ask anyone who has been through a divorce before; there are a ton of things thrown at you right after the fact. Slow down and be methodical. I’ve seen it where people wind up in bad situations that have longer-lasting negative repercussions than their initial divorce. For example, buying a house you wind up not being able to afford, spending too much money on material possessions (new furniture, a hot little convertible, etc) or rushing into a new relationship out of the loneliness and vulnerability. These are all important decisions to make, regardless of any current life situation, and are only magnified during or after a divorce.

A wise man once told me, from his personal experience after divorcing and retiring in the same year, “never combine one huge life change with another.” The effects on your personal life are immeasurable at that point so do your best to slow down, process and think of the long game.

Seek Someone In Whom You Can Confide

You need to be able to vent. Talking it out is a necessity and being able to talk with someone who is outside of your own head and isn’t subject to your feelings can help you sort things out. You’ve got a million things circling around your brain, you need to confer, get advice and most importantly, feel like you’re being listened to. There are a lot of people out there who have been in a situation that is very similar to yours and can help provide some perspective.

Seek out friends and family, especially the ones who have been through divorce. The value of just hearing someone say “I know exactly what you’re going through” is incredible. Bottling it up will only exacerbate any negative leftovers.

Take the Money Seriously and Stay Invested

Marriage is a partnership and just like any partnership, what one partner does well isn’t necessarily what the other does well. I see it all the time where one person handles the finances and the other assumes the role of the willfully ignorant spouse because “he/she handles that stuff.” That willful ignorance could be one of the biggest mistakes you ever make. 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 you need to know the basics. Make time, take online courses, read personal finance sites like ours, work with the right people, and DO NOT make decisions out of fear or uncertainty related to ignorance.

Legal separation always has money involved. Whether its 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. Do not make the mistake of divesting, don’t succumb to paralysis, and don’t tell yourself “I’ll get to that later” because this money has to last. If you don’t know; learn. If it’s beyond your capacity or desire, hire someone you can trust.

Ultimately, I hope this advice is something you never have to functionally apply. Divorce is never the desired outcome. However, there are some things you can take away from this to apply to any situation. As the old saying goes, “you don’t plan to fail, you fail to plan.” Take your money seriously by using Personal Capital’s free financial app to manage both your entire financial picture; his, hers and ours. It’s important to have open conversations about your finances. Talk about objectives and concerns. And if everything still can’t be worked out, at least you’ll have a better idea of how much you get to keep.

Best of luck!

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Ryan Koenig

Ryan Koenig

Vice President at Personal Capital
Before joining Personal Capital, Ryan worked as a Financial Advisor at Trilogy Financial Services, helping clients reach their goals with a full range of advisory and planning services. Prior to his time in investment management, Ryan worked on the banking side of financial services, in both personal and mortgage lending. He received his B.A. in Psychology from Buffalo State College. Outside the office, Ryan takes advantage of his Denver residence by enjoying a wide variety of outdoor activities, including skiing and golfing.
Ryan Koenig

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3 comments

  1. Alex Jennings

    Thanks for writing this article, Ryan. I’ve been consulting with a divorce lawyer, and I think it’s time that I get my finances in order. I wouldn’t want my wife to get a raw deal, but it’s important that I’m not giving her everything that I own. I’m meeting with an accountant today to go over my IRA and 401K; great suggestions!

    Alex Jennings |

    Reply
  2. Deanna R. Jones

    This advice will be useful for when I have to file for divorce from my husband. Neither of us have a lot of money, so I’ll need some tips for how to handle my finances so that I’ll be left with some money to get by. Your tip to take my money seriously by avoiding divesting will seriously help me make my finances last much longer. You’re right, I need to stay strong and stay on top of things so that my money won’t exchange hands into my husband’s pocket. That way, I’ll be able to stick it out through my divorce while losing as little money as possible. Thanks for the tips!

    Reply
  3. Benny Carter

    Excellent article Ryan! Wish I had this information 5 years ago.

    Reply

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