Divorce is coming – what to do?
(If you are divorced, please share your thoughts about divorce and money)
My wife and I have been married for almost three decades, and have never gone through a divorce, so I have no personal experience on this subject. However, I have counseled many couples and single people who have experienced divorce and money problems. I am offering few pieces of advice to whomever needing to read this post.
Let me say this first: I AM NOT GETTING A DIVORCE. AND I DO NOT advocate divorce. I believe a couple should stick with the vows they made when they were betrothed. When you walked up and the preacher said, “For better, for worse, for richer, for poorer,” and you get married, you’d be willing to take a bullet for her/him or you shouldn’t have married her/ him.
But divorce is a part of reality, and people are not perfect. Statistically, the number-one cause of divorce in North America is money fights and money problems. A study from Citibank found that 57% of divorced couples said money fights were the primary reason they didn’t get along. There are many other reasons for divorce other than money, including abuse, infidelity, addiction, socially unacceptable behavior, mental issue, etc, etc. The list is endless. But one common thread is that a divorce turns a marriage into a business transaction. If you are already heading for a divorce, or a divorce is in your past, there are things you can do before or after a divorce.
Before the divorce: If you seek pastoral and counseling help, and one or both is not willing to change, and the divorce is 99.9% final, then, and only then, I suggest the following:
- Separate joint checking account into separate checking accounts.
- Start re-titling joint possessions: credit cards, loans (mortgage, auto, home equity, family loan, etc.). Some of these will require refinancing, which may be very difficult, if one or both has bad credit score. In that case, selling the large asset may be wiser. You definitely don’t want to be burdened with your ex’s debt. I hear many horror stories in which the wife decides to keep the house owned jointly, loses income, and foreclosing, dragging both names down the credit score spiral.
- Start building up your full emergency fund ($15,000 to $20,000) in a simple money market account so that an emergency does not turn into a big money problem later.
- Any inherited asset, not comingled, stays with the recipient of inheritance. If comingled, then you need to be civil about how to divide it up.
- Make sure that beneficiary names for various documents (will, durable power of attorney, insurance, 401(k), IRA, Roth IRA, annuities, etc.) are changed to reflect the proper names. If you plan to re-marry, you don’t want your insurance proceeds to go to you ex.
- Prepare this year’s tax. You will need to help each other on this no matter how much you dislike each other’s gut.
After the divorce is final: If you sat down with the divorce lawyer(s), came to mutually agreeable understandings about the split, and have signed all of the divorce decree, then do the following:
- Be very careful that you don’t medicate all this pain you’re going through with spending. That would make you human, but it puts the wrong medicine on the wound. About 70 to 80% of the ladies that go through this process want to stay in their home, even if she can’t afford it. Take a good look at the house payment and see if it works.
- Based on your divorce decree, move in the direction of two separate lives and negotiate on their COMBINED retirement fund, social security income, taxable assets and equities that exist between them.
- DON’T make any LARGE purchases (over $500) unless you talk to someone you trust and will keep a cool head for at least 6 months. Don’t talk to ANY sales agents who try to sign you up for insurance, annuities, or IRA rollover, unless you’ve had a number of years of trusted transactions. You can always spend the money later when cooler head prevails. Don’t rush into any big purchase.
- Keep the four walls intact: Food, shelter, utilities, and transportation. You will be busy enough to keep these walls upright. If money becomes tight, pay the four walls first, then medical, auto, home insurance premiums second, and unsecured loans very last (or not at all – if money runs out).
- If you don’t have a budget, start one, the sooner the better. Set aside money for the emergency fund and the four walls, and what ever is left over, pay down your debt. The debt is what kills most divorced spouse’s financial life.
Next post will cover additional advice on divorce.