Many times the divorce process stalls and becomes a shipwreck. But it doesn’t have to be that way. One of the most common reasons for the process to stall or become derailed is when one spouse has less knowledge of the finances than the other spouse. This imbalance of power typically leads to one spouse becoming paralyzed with fear of the unknown and the other spouse becoming angry and vindictive because the process keeps dragging on.
Knowledge is Power
The key to getting the process back on course is by educating both spouses on the tax and financial issues of their divorce, thereby ‘leveling the playing field’ and making it easier for negotiations to move forward. Knowledge is power and never is this more important than in the divorce process. But the kind of power I am referring to is not the type you use against someone as a weapon, but more of an internal empowerment that enables emotionally stressed and overwhelmed individuals to make informed decisions. When financial information can no longer be used as a strategic weapon, it becomes a shared tool that aides in developing mutually advantageous settlements.
Home Sweet Home
As a Certified Divorce Financial Analyst®, I work hard to educate and empower my clients with all the information they need to make these informed decisions. Many of my female clients want to know if they will be able to stay in the marital home with the children, while most of my male clients wonder if they will be able to either rent or buy a house that is appropriate for the children. I had one client say to me that he was going to have to live in a cardboard box while his wife would be living in the Taj Mahal. These emotions are real, but unless they become a part of the analysis and are addressed by illustrating the viability and future financial impacts of different scenarios, the parties will remain castaways on Divorce Island.
These highly emotionally charged issues can play a big role in creating stormy seas and ultimately slowing down the process. Providing both spouses with the information they need to make informed decisions about the marital home will go a long way to finding a resolution that works. Once the ‘in-spouse’ knows that she can afford to stay in the marital home and the ‘out-spouse’ knows he can afford a decent apartment, the parties are empowered to move forward with their decisions.
Will I Be Okay in Retirement?
Typically, the largest assets that couples have are their homes and retirement accounts. A common concern for the non-working spouse or lower wage earner, is, will I be okay in retirement? This is a question that can only be answered by running a retirement projection based on the amount of retirement assets each spouse will receive in the divorce.
In order to run this type of report, we will need to estimate what that spouse’s living expenses might look like in retirement as well as take into account other sources of income like social security. If, based on certain assumptions, the projection shows shortfalls and a premature depletion of assets, then maybe the proposed division needs to be adjusted. Of course, no one has a crystal ball to predict what is going to happen in the future, but it will be pretty obvious when a settlement does not address the future needs of one of the spouses. This is especially important in a grey or silver divorce, when the divorcing couple is either nearing retirement or already in retirement.
Calming the Waters…
Financial education during divorce should never be underestimated but all too often it is underutilized. When both spouses feel comfortable that the proposed settlement addresses most of their short- and long-term needs and goals, they have peace-of-mind and confidence to sign on the dotted line. If you are headed off course and have trouble navigating these unchartered waters, working with a CDFA will help to ensure that you don’t get shipwrecked on Divorce Island.