Going through a divorce is among life\u2019s most difficult experiences.\u00a0 There are emotional, social, psychological, economic, and even physical consequences.\u00a0 Because the process can be so difficult, you might overlook issues that could impact your financial security and independence. We\u2019ve highlighted below some of the most important mistakes women make in divorce.<\/p>\n
Your home provides comfort and security.\u00a0 It\u2019s a very natural reaction to want to stay in your home when faced with the loss, adversity, and disruption that divorce brings.<\/p>\n
We often find that one spouse wants to remain in the home, and it\u2019s often the wife.\u00a0 She usually has several reasons for this, and one is keeping the children in their family home in an effort to minimize the disorientation they\u2019re experiencing.<\/p>\n
Unfortunately, it\u2019s often not economically<\/strong><\/span><\/a> possible to do so.\u00a0 If you were able to afford the house before your divorce, it\u2019s not a given that you\u2019ll be able to after the fact.<\/p>\n We highly recommend that you assess your post-divorce financial situation prior to reaching a settlement.\u00a0 Housing is usually your biggest expense before and after divorcing.\u00a0 Can you really afford to live on your own in the house you shared?\u00a0 It may be possible in the short-term, but what about long-term?\u00a0 Will remaining in the home prevent you from having a comfortable lifestyle, paying off debt, funding education for your children, or saving for retirement?<\/p>\n When you\u2019re negotiating your settlement, you must include taxes during the process.\u00a0 It\u2019s easy to forget that not all assets are alike, once taxes are considered.<\/p>\n A 401(k) with $800,000 is not equivalent to a home with a value of $1 million and an outstanding mortgage of $200,000.\u00a0 A brokerage account with $250,000 and a cost basis of $200,000 is not equivalent to a life insurance contract with $250,000 in cash value.\u00a0 A pension that provides an income of $3,500 per month is not equivalent to rental property income of $3,500.<\/p>\n Someone earning $250,000 a year is in a different tax situation than someone earning little or no income.\u00a0 Consequently, the way you should look at the assets in your settlement may differ from the way your ex-spouse will.<\/p>\n You should consult with a tax professional who can help you evaluate your assets on a tax-equivalent basis. Considering taxes and consulting a professional can help you avoid some of the common mistakes women make in divorce.<\/p>\n If you\u2019ve been out of the workforce for some time during your marriage, a divorce may spur you to return to work.\u00a0 For example, if you were at home raising children during your married years, you may at some point want to work again, so that you can generate additional income, make new social connections, and be engaged and stimulated.<\/p>\n Unfortunately, it\u2019s often very challenging for someone who hasn\u2019t been working for many years to re-enter the workforce.\u00a0 The skills and knowledge required to perform many jobs change over time.\u00a0 If you\u2019ve been out of the workforce for many years, you may need to obtain new education and training.\u00a0 There is also, unfortunately, age discrimination in our economy, which may prevent you from being hired for positions for which you may otherwise be qualified.<\/p>\n We advise clients to have conservative expectations about their ability to obtain a new job, and about the income that the job will pay.\u00a0 We\u2019ve also observed clients who, while otherwise qualified to work, have chosen to not work even though they would be much more secure financially if they did work.\u00a0 So, it\u2019s important not to plan on income that may never materialize.<\/p>\n People who have been married often become accustomed to a lifestyle that\u2019s only possible because they\u2019re married.\u00a0 After a divorce, the economics for both spouses can change dramatically.\u00a0 You\u2019re now splitting resources (income and assets) and duplicating expenses you once shared (housing, utilities, insurance, vacations, etc.).\u00a0 It\u2019s a double negative.<\/p>\n There\u2019s often a reluctance to change spending behavior, too, because experiencing even more change is undesirable, and because it may not be obvious that a change is necessary.<\/p>\n The harsh reality is that you\u2019ll probably need to reduce your spending after a divorce, to avoid incurring debt, and to ensure that you\u2019ll have enough saved to fund retirement.\u00a0 The sooner you realize this and make the necessary adjustments, the more likely that you\u2019ll enjoy long-term financial security<\/a><\/strong><\/span>. Taking control of your finances is a crucial aspect of avoiding the common mistakes women make in divorce.<\/p>\n <\/p>\n Investments are typically split between the spouses as part of a divorce settlement.\u00a0 Both spouses should then determine an appropriate investment approach for the future.<\/p>\n Generally, one spouse took primary responsibility for the couple\u2019s investments.\u00a0 That spouse made (good or bad) investment decisions, which affected both of them.\u00a0 If your spouse was the one that took primary responsibility during your marriage, you\u2019ll need to quickly get familiar with your accounts and investments after your divorce is finalized.<\/p>\n Women tend to be more conservative investors than men. They\u2019ll often adopt a very conservative mix of investments (or \u201casset allocation\u201d) after divorce because of a desire to preserve their nest egg.\u00a0 The problem is that a focus on preservation of principal will result in very little growth of the portfolio.\u00a0 And, for your financial security you\u2019ll probably need to grow your investments at some reasonable rate that\u2019s greater than the rate of inflation.<\/p>\n Parents typically want to help their children obtain a college education.\u00a0 Couples who are married often agree to pay for some portion or all of the educational costs for their kids.<\/p>\n However, after a divorce, it\u2019s often much more difficult for parents to support their own independent lives and pay for college for their children.\u00a0 Unfortunately, many of us commit dollars to paying for college that are then not available for our own long-term financial security.<\/p>\n Both spouses need to determine during the settlement process their ability to fund college for their children after the divorce.\u00a0 They shouldn\u2019t obligate themselves to paying for college unless they can meet their own needs, both current and future.<\/p>\n Most people don\u2019t consider, much less understand, the benefits they\u2019ll receive from Social Security until they reach an age at which they qualify for them.\u00a0 Social Security benefits<\/a><\/strong><\/span> are a very significant resource for most people, and, consequently, they should be considered carefully so that you may avoid the common mistakes women make in divorce.<\/p>\n We\u2019ve seen numerous situations in which a divorced person didn\u2019t understand the benefits that they\u2019ll receive based on their own work history and, potentially, on the work history of an ex-spouse.<\/p>\n We recommend consulting with an advisor who\u2019s well-versed in the nuances of Social Security.\u00a0 Unfortunately, you can\u2019t assume that the information provided by the local Social Security Administration office will be accurate or complete.\u00a0 An independent expert can equip you with the information (and supporting documentation) necessary to apply for benefits.<\/p>\nNeglecting Tax Considerations in Your Settlement<\/b><\/h2>\n
Not Returning to Work\u00a0<\/b><\/h2>\n
Overspending<\/b><\/h2>\n
Contact us today to learn how a Certified Divorce Financial Analyst\u00ae\u00a0can help guide you and answer your financial questions before, during, and post-divorce.<\/a><\/strong><\/span><\/h2>\n
Overly Conservative Investments\u00a0<\/b><\/h2>\n
Prioritizing College Over Retirement<\/b><\/h2>\n
Social Security<\/b><\/h2>\n
Estate Planning<\/b><\/h2>\n