Planning for One
Three Steps Toward Reshaping Your Financial Plan After a Divorce
“A story has no beginning or end: arbitrarily one chooses that moment of experience from which to look back or from which to look ahead.”
― Graham Greene, The End of the Affair
Life happens. Some of it we plan for, some of it we don’t. One transition that cannot be predicted is a divorce. Although it’s seldom in the plans, divorce ends half of marriages. For adults 50 and older the divorce rate has doubled since the 1990s. Many adults will have to divide up the saved assets that had been put aside to share in retirement. Even if both partners worked and saved well for their retirement, there is often a gap between partners when it comes to levels of earnings and wealth. This disparity can disproportionately affect women, as they may have taken time off for child-rearing or family needs. In this article, we will go over some factors to consider regarding divorce and your retirement.
Making a New Plan
There is a lot of emotion in the process of divorce. It can be difficult to come to agreements and discussions often result in resentment, anger, and vengeful actions. Try to maintain an even keel and look to your close friends and family for positive comfort and support.
In a divorce, you must focus on making clear, non-emotional financial decisions. We’ve seen many clients make rash decisions without thinking clearly, because it was too painful for them to think through. While it’s never easy, working with a professional: either a divorce mediator or financial advisor, may help you to navigate….
The first step is to identify where you are and where you need and want to go before you begin creating a new financial life plan. Factoring in how much you have and how much you will need is critical. But it is also important to consider your total well-being.
- Well Being: How would you rate your well-being at work (or the activities you pursue regularly), leisure, health and your relationships?
- Progress: How would you rate your level of satisfaction with your work, where you live, what you have accomplished and what you have learned at this stage in your life?
- Freedom: How would you rate your level of confidence in your purpose in life, your independence and autonomy and your security?
Identifying where you stand in relation to these aspects of your total financial and personal life can help you really think about what you want and where you want to be, if it isn’t where you are right now. For example: Is it important for you to stay in the same school district so your children can attend the same school? Are you currently working and is the income from that job enough to support your lifestyle? Take the time to answer some of these important questions, and you may have a clearer picture of what you want to have happen.
Don’t hesitate to speak to a professional. We provide guidance during this process and it can always be beneficial to speak with a specialist in financial life planning if your life has encountered a major transition. We met one of our clients towards the end of her divorce. She was in the process of financializing some of the details with her soon-to-be ex-husband. A common sentiment she shared with us was that she “just wants it all to be over.” She was too emotionally overcome to clearly discuss her needs post-divorce. She was left to restart her career with very little in alimony and maintenance. Years later, as she reflects back to those discussions during the divorce proceedings, she wishes she could have done things differently. She wished she had the strength to speak up.
Having a new plan in place will help negotiate how best to divide assets. Whereas assets like houses and savings are usually in joint accounts, pensions, IRAs and 401(k)s have been built up by individuals. Couples have the option of splitting 50/50 or negotiating more specific terms. If both couples have comparable amounts they may just agree to walk away with their own. No matter what agreement the couple comes to, they will both be leaving with less money toward retirement than they had when they were together. Because of this, divorced households have 30% less net worth than non-divorced households and are more likely to have issues paying for their retirements.[i]
Over a lifetime of working and acquiring, most couples will have accumulated multiple accounts, investments, insurance policies etc. all of which, most likely, has their spouse as the beneficiary. In the divorce process, it is important to go through everything, even making a physical list of accounts and assets. Research if you are eligible for a portion of your ex-spouses’ pension or social security.
Always remember to update any legal documents. Take the time to ensure you remove your ex-spouse on any and all accounts (except if it is part of the divorce agreement). Review all legal agreements, like the power of attorney, wills and living wills. To prevent difficulties down the line, making a new estate plan and updating your will, as well as making new financial plans will get you up to date. Keep in mind if you remarry down the line, you will need to update a lot of this paperwork as well.
Getting on a New Track
The journey through a divorce can be hard both emotionally and financially. What matters most is to keep your eye on the future. Life is a series of changes and chapters. The end of your marriage is not the end of everything, and instead maybe the beginning of something great. Ensuring your security into retirement will save a lot of heartache and headache down the line. Make a new financial plan, seek out counsel from experts and make sure that all your legal documents and assets are properly categorized and reassessed.
Good luck on this next chapter!