Getting divorced? Everything you’re worrying about is wrong.

Especially if you’re a woman, I can almost guarantee that you’re worrying about child support and whether you can keep the house. But in the scheme of things, child support is relatively temporary and you should do some heavy number crunching before you keep the house. (See my blog post here on that topic). So what will really have an impact on your future?

  •          Select a lawyer who knows how to negotiate. A lot of people want a bare fanged tiger who will annihilate the other side. If only. What an angry and overly aggressive attorney usually achieves is big legal bills, which doesn’t exactly result in direct benefit to you. While you certainly want someone who will work for your interests, I’d suggest a cool head in an inevitably hot situation is more productive of actually getting a fair divorce in a reasonable time. And my personal observation is that judges hate someone who loses their temper and prolongs the case.
  •          A lot of women (and some men) throw up their hands when asked to provide data for the financial affidavit. They’ve never kept precise track of expenses, they don’t know how to use a program like Quicken or Mint, and therefore they have no real idea of what it will actually cost them to live post-divorce. You don’t want to settle, THEN find out that your real, justifiable expenses are far, far higher than what you represented to the court. You can’t just make this up or guesstimate. So dig out credit card statements, bank statements (including how many ATM visits you make), receipts emailed to you by Amazon, Land’s End, Net-a-Porter or wherever else you shop, and try to reconstruct what you really and truly spend. Get help (from a financial planner like me) if it’s all too overwhelming or you’ve never done it before or the best you can do is fill up a shopping bag with receipts. Don’t be modest and don’t be ashamed about this—it can be hard to face but it’s a critically important step for your current divorce case and your future. If you want to worry, here’s the place to put your energies. This gives most people a great big headache. The rest become financial planners or CPAs.
  •          Plan what you’re going to do post-divorce. Given the times we live in, if you have any kind of education, you’re probably going to be expected to go back to work at some point if you’ve been a stay-at-home-parent. Divorce cases can drag on for years—time enough to get further professional education, join networking groups and associations, and update your skills. If your wardrobe consists of denim jumpers and clothes from Goodwill, you’ll need to upgrade your personal appearance. When was the last time you were at a dentist?
  •          If your share of assets might be large enough that you don’t have to go back to work, you still have a job—managing those assets. Sure, financial advisors (like me) can offer you valuable assistance and manage it for you, but you’ll feel a lot more secure and be less likely to be fleeced by some sharpie if you have some understanding of what’s going on, and why the advisor is recommending the specific actions and investments. Boring? Confusing? Really, just read 15 minutes a day—financial magazines (Kiplingers), websites (Vanguard has great free education materials, also, gosh, even Susie Orman if you must (post on her here). Don’t believe everything, and don’t believe people who scream at you (Jim Cramer, ugh). You’ll be proud of yourself, honest.
  •          Don’t spend the next 10 years arguing about the kids. Unless your spouse has horns and a forked tail and shows up that way in court, visitation is going to happen. The less conflict your kids have to listen to, the better they’re likely to come out of this. Put a lid on it and get on with it. By the time they get to college, they’ll have plenty of notes to compare with all the other kids who have a)divorced parents (50% of us) and b)insane parents (all the rest according to the kids). Nobody looks at their kids and says, I hope to make your life as miserable as possible. Not even your soon-to-be-ex-spouse. So don’t.
  •          Divorce isn’t really about evening things up, punishing anyone, or even really about what’s right. It’s about money. See a psychologist, see a financial planner, find friends who will listen. They’re all cheaper per hour than your attorney. Let your attorney do what he or she does best—work the law and negotiate for your best achievable deal. Nobody comes out of a divorce whole. You want to come out of a divorce with the ability to restart your life.

Hate your spouse? Give him the house!


The Governor's Mansion in Virginia, 1905

Judges in divorce court must go cross-eyed over the number of times they listen to people wrangling over who keeps the house. It’s usually the woman, who wants to stay put so the kids don’t have to change neighborhoods, school, and friends (or maybe, so she doesn’t have to face cleaning out their bedrooms).

When there was a ton of equity in the home (remember the good old days), the husband might have put up a fight, but my guess is that now, he’s more willing to turn it over. The woman breathes a sigh of relief, feels as if she’s protected her kids, and off the husband goes with all the liquid investments.

Yeah, I know those paragraphs are filled with stereotypes, but let’s just go with this for a minute. I’m going to direct my little fable to women, because that’s who talks to me the most about keeping the house, but if you’re a guy in the middle of a divorce, just change all the pronouns—most of the advice will be just as applicable to you.

So, let’s say you really hate your soon-to-be-ex and want to be as mean as possible (no, I’m not advocating that, just sayin’): Give HIM the house. Why?

  1.     He’ll be stuck with an iceberg that has an appreciation potential of, what? Nowadays? Let’s be generous and say 2%. And people talk about the poor return of bonds!
  2.    It’s an asset with no cash flow (except out the door, see below). So no matter what it might be worth on paper, he’s not going to see any dividends or year-end capital gains going into his money market account.
  3.    Money is definitely going to be moving, but as I say—out the door. Figure on at least 1% of the house’s value in maintenance and repairs. Probably a lot more the first couple of years—warring couples generally put off a lot of maintenance because they’re too busy with their other problems. Also, there’s a real impulse to change everything, obliterate all signs of the former spouse, and get the place finally looking the way you’ve always wanted it to, if only you hadn’t had to argue about it. All those new decorating touches are going to cost him a bundle.
  4.    It’s a mess. The one that moves out takes what he needs, and the owner is left with all the junk that’s accumulated over the years.
  5.    There may be very little equity, but still a mortgage to pay.
  6.    As soon as the kids grow up, it’s going to be way too big for him, but he’ll still be paying utilities for the whole heap.
  7.    Unlike sales prices, property taxes keep going up. Even if he manages to pay off the mortgage, the property taxes are an inescapable expense.
  8.    He’ll be chained to one place. Accept a better job in another city? Not until he sells that one. Like to go traveling in Europe for a few months? Time to pay a house sitter.
  9.    He gets to shovel the snow, mow the lawn, clean the toilets, or pay someone else to do it.
  10. The kids will have an easier time moving back home. Without a job. On his grocery bill, utilities, gas, insurance, etc.

Meanwhile, you can move into that apartment, condo, townhouse or pied à terre in Paris, where you call the supervisor to fix everything and don’t mow the lawn. I dream about it every time I shovel snow. And yes, I kept the house.

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Drown-proofing your finances


House on Fire

House on Fire (Photo credit: dvs)

We all know that we should plan for retirement and our kids’ college education. Like many other things in life, it’s simple but not easy and the how-to keeps plenty of financial planners in business. But what about the stuff you never see coming—anything you can do to protect yourself from drowning in the unexpected?

Have an emergency fund. Yes, it’s obvious in theory but apparently most people don’t believe it because few people have an even barely-adequate one. Yes, you have insurance (you do, don’t you? See below!) but there are plenty of things insurance doesn’t cover. A few:

  • veterinary bills;
  • dental work (insurance is rarely worth the cost);
  • deductibles on multiple policies (such as you drive your car accidently through your garage, or the house and the car burn in a fire or float away in a flood);
  • the cost of repairs or care when insurance doesn’t pay the full bill, one person gets really ill and the other person has to take off work to care for them or investigate or arrange care (unbelievably time consuming),
  • a loved one needs psychological care (few health policies pay the whole cost of this);
  • your car develops sudden, expensive repairs or you suddenly need a new one;
  • the new ones I hear about nearly every week.

In fact, many, many disasters could be avoided if an emergency fund were in place.

You say you have credit cards for that? And so did many of the people now facing bankruptcy because disasters multiplied, forcing them to put more and more on a credit card while they often had less and less income.

You’ll just cash in investments? How about in March, 2009 (market bottom,remember)? Tap your retirement fund?  You’ll either get taxed on that or have a loan to repay. And a lot smaller retirement fund.

Continually upgrade your professional abilities. Join and keep active in whatever networking groups are applicable to your profession. Take any opportunities your company or professional association offers for skill upgrades. Take more classes at night or weekend workshops. If you ever get fired, you’ll know people and your resume will be fresh.

Don’t quit the day job. If you want to start a business, write a novel, change careers, do it part time. That way you can test out the viability and find out whether you really like it. Sure it takes time. Sure you’re tired. Sure it’s hard. Sure it takes herculean discipline. All of which are true, but more so, once you do quit the day job.

Also, after talking to oh so many stay at home moms going through divorces, I strongly advise anyone to keep a part-time or consulting foot in the door of their career. It’s far easier to re-activate a career from part-time than from scratch. Sure you’re madly in love, have the perfect marriage, and will never be in that situation. Unless your spouse suddenly becomes disabled. It happens. And, the impact on your future Social Security benefits can be dismal if you take a decade or two off of earning.

Live below your means and especially control your housing costs. Yeah, I know we’ve all heard it. It’s hard to live in a big city. Anyone can cut back on eating out, travel, and electronics purchases but ratcheting back the mortgage is much harder. Instead of living large for the neighbors, smile to yourself when you compare their new car to how much money you have in the bank, er, no-load mutual fund portfolio.

Don’t have all your wealth in your house. In an emergency you can’t spend equity, and it can be very hard to get a home equity loan if you suddenly have no income. People near retirement should be very careful about using significant cash assets to pay off the house if they have no other savings. (Whether to pay off is too complex and individual to discuss thoroughly here).

Understand what’s in your retirement accounts. Some people are very focused on saving, but park the money in investment choices that are absolute crap. Surprise, you’re 58 and your retirement is a disaster. Listen to the presentations, read the brochures, and learn something about investing. It won’t hurt, I promise.

Never, ever sign for your kids’ college loans. They have a lot of time to repay them. You don’t. If your kids don’t have enough initiative to be participants in their college funding, I wouldn’t say the future looks too bright on the employment front for them, either.  Better clean up that basement room now.

Don’t borrow more than you will make the first year after college (or any other education). That way, you can pay it off in 10 years with a reasonable kick to your future income. If you can’t make it with that level of borrowing (combined with work, financial aid, individual scholarships, and whatever parental aid can be cajoled), you can’t afford to attend a traditional, full time, four year college. There are plenty of other ways to get an education and you’re going to need to explore them. It’s a good thing—you’ll have more self-reliance, more marketable skills, and you won’t decide to major in something dopey. Really, it’s not as hard as paying off a quarter of a mil for a degree in communications.

Don’t do everything for your kids and don’t pay for everything. You set their expectations too high while destroying their own initiative. The kid that has a job in high school (as opposed to 7 extracurricular, paid-for activities) is, IMHO, much more likely to have a job after college! Would your kid be willing to earn part of the money to pay for all those extras? If not, maybe you ought to save yourself the cost of those music lessons, language camps, etc.

Pay attention to insurance. Make sure you have it. Then make sure you re-evaluate it every 2 years or so for coverage and cost. Get some quotes. Be sure the values are current.

Take advantage of any government program for which you are (or your loved ones) are eligible. Veterans benefits, Social Security disability, whatever—don’t be too proud. These programs are designed to provide a safety net and sometimes we all need that net. You paid taxes for it. I paid taxes for it, so use it already. You won’t be the first person going through a divorce who ever applied for food stamps.

Face up to age. Get your estate documents in order. Sacrifice for long-term care insurance. Talk to your parents about their finances, and let your kids in on your “secrets”, too. (Who do you think will be making the decisions?) Don’t stay in your house until you’re too feeble to walk out on your own. Make some plans while you have choices.

Clean up the place. Junk, clutter and deferred maintenance reduce the value of your assets, damage your possessions, and can cost a ton of money to your heirs and anyone responsible for your care should you suddenly become disabled or need to sell in a hurry. Any realtor can tell you about the beautiful home gone to wrack and ruin by terrible housekeeping and neglected maintenance. Anyone willing to buy and repair a wreck is going to expect a discount far exceeding the cost of repairs. After all, they have to factor in THEIR labor cleaning up and fixing YOUR crap.

Pick any one of the above pointers, do the opposite, and you’re living on the edge. Save yourself now! And be careful out there.

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