Mitigating negative financial consequences of divorce takes research, planning, and a strong mental game.
Over the years of assisting with collaborative divorce cases, I have seen couples make many mistakes. Most mistakes are human and perfectly understandable – after all, divorce is an emotional journey and most people don’t do it enough to get good at it. However, some of the mistakes that I see over and over can be particularly expensive, with consequences that will affect the former spouses for years.
Unfortunately, women are often on the receiving end of those negative consequences. A 2011 study from the University of Connecticut that followed lifetime economic consequences of divorce on 600 women found that divorce had a measurable financial impact on women. That is consistent with other research that had previously found divorced women were more likely to require public assistance, report lower household income, or fall below poverty level than recently-divorced men.
Here are three avoidable mistakes that I see most often. Navigating around them can help women land on their feet and begin to rebuild their financial security after a divorce.
If you depend on your spouse for health insurance, life insurance, disability insurance or any other coverage, build your projected premium payments into your post-divorce budget. The only way to do that (and to line up the coverage to flow seamlessly from the pre-divorce policies to the post-divorce ones) is to do your research ahead of time. Your goal should be simple: “Zero days without coverage”.
Begin by making an inventory of insurance policies that your spouse is currently paying for (either directly or through his employer). In most cases, it’s safe to assume that you will be on your own after the divorce. Shop around for every type of policy you have now, and don’t dismiss “less important” coverage types (such as disability) without looking into them first. Many women have a tough post-divorce adjustment period with a tight budget but being exposed to uninsured risk can ultimately be more traumatic and more expensive.
Having a limited understanding of family finances
Many families have a formal or less-than-formal arrangement whereby one of the spouses is responsible for money decisions. He or she manages the budget, pays the bills, and decides whether they can afford a new car. While this may be an efficient way to manage family finances, it’s rarely best in a divorce – especially for the less-money-aware spouse. The divorce agreement will directly affect your financial well-being for years, so you must make sure it’s sound, reasonable, and realistic.
Begin by getting all the facts. The best way to get your arms around household finances is by completing an expense analysis based on your bank records and credit card statements. Sure, your financial situation will change after the divorce, but you can’t “cut down the expenses” if you don’t understand the starting point. I have seen clients get surprised by debt they didn’t know the family had, as well as by the real costs of children’s activities and other lifestyle choices.
Fighting over things that don’t matter
Richard Wagner, a German composer and conductor, said it best: “Money spent on getting mad or getting even is money wasted.” I wish more clients would remember those words as they muddle their way through messy divorce negotiations.
In the emotional turmoil and uncertainty, spouses can sometimes get attached to small things (an armchair, a collection of keepsake spoons collected during family travels, or a stir-fry pan received years ago as a wedding gift). If you find yourself being pulled into an argument over kitchenware or furniture, take a deep breath. Most physical objects are replaceable, and even things with important sentimental value may lose their appeal once you consider the billable hours that the fight will consume. Spending thousands of dollars fighting over an object that’s worth $50 isn’t good use of your time or money.
Image credit: http://www.instyle.com/news/women-invest-less-than-men-gender-investing-gap