Divorce is hard. It's time consuming, energy consuming, some may say all-consuming... Divorce can be one of the most painful and difficult experiences in a person's life.
If the emotional difficulty isn't already enough, there's the financial difficulty that adds to the burden. If your divorce isn't particularly amicable, there's a higher chance that you're operating under increased levels of stress. What is often overlooked is that stress can lead to immense difficulty in making important decisions- and in divorce, there are plenty of important decisions to be made.
The Harvard Business Review published an article on how stress leads to bad decisions. One of the core tenants of overcoming more reactionary tendencies in states of stress is to delegate some decision making. Delegating doesn't mean giving up your ability to make decisions, but perhaps to work collaboratively with a trusted confidant to help arrive at the right decision. The HBR article notes that in a higher state of stress, we tend to resort to "all or nothing extreme options" in our decision making process. That's the very last place we want to be during or after a divorce.
As is normal and helpful, support from friends and family certainly makes the divorce process more manageable. However, not all friends and family are equipped with the knowledge and expertise to oversee financial distributions, evaluate settlement agreements, and forecast your new financial future.
This is where hiring a trusted CERTIFIED FINANCIAL PLANNER™ can be a big help. An Advisor who is empathetic, caring, patient, and willing to help discuss the things that matter most to you, and one who cares beyond the dollars and cents, may be just what you need to round out your support team.
It takes a caring and empathetic professional to help in times like these. Someone who wants you to be seen, known and heard in the process- not just someone offering directives or commanding that you "just take their advice." Working with a Financial Advisor in the process should be collaborative. Advisors that aren't specially equipped to work with divorced clients may overlook the most important document that will move you forward: the settlement agreement. By emphasizing financial planning concepts like time value of money, tax planning, and cash flow planning, we can better attain the truly equitable distribution of assets.
A simple example can be followed below:
John Doe, age 42 Jane Doe, age 40
Sales Manager: $150k/yr Teacher: $35k/yr
John's 401(k) $450,000 Joint Assets
Primary Residence $550,000 (no mortgage)
Bank Account $50,000
In a typical scenario where one spouse is the breadwinner, it's natural for the other spouse to want to keep the home. In this example, even if John and Jane both agreed that it was fair for Jane take the paid-for home (worth $550,000), allowing John to keep his 401(k) (worth $420,000) post divorce, Jane may be at a substantial disadvantage in the long run.
If we assume home values increase close to 3% per year, in ten years, Jane's home would be worth $739,154.
If we assume John's invested 401(k) will grow at a rate of 7% per year, in ten years, John's retirement nest egg will be worth $885,218.
What's more is that Jane will be receiving an asset that costs money to maintain. Taxes, insurance and maintenance add to Jane's need for income. While the home may be of substantial value, it does not and will not produce any income for Jane.
While divorce agreements usually include alimony payments of some kind, it would be difficult for Jane to maintain her quality of life while maintaining a $550,000 home, let alone saving for her own retirement.
The Bottom Line
A CERTIFIED FINANCIAL PLANNER™ who takes time to analyze your case, look through the proposed settlement agreement, and holds your hand through the process may lead to much better outcomes in the long run.
Divorce may not have ever been something you planned for, but building a team around you to soften the blow while helping you understand your options may be just what you need to carve your path forward with confidence and peace of mind.
Carefully review our divorce process, and if you're inclined, schedule a free 30 minute consultation via phone or Zoom. At Plan Wealth Creative, we provide in person Divorce Financial Planning and Consulting to clients in Sarasota, FL or virtually (via Zoom).