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The Financial Side of The Decision to Exit Your Marriage
“When two people decide to get a divorce, it isn't a sign that they ‘don't understand’ one another, but a sign that they have, at last, begun to.”
- Helen Rowland
Choosing to divorce can be a difficult decision. The prospect of a major change in lifestyle, relationships, and finances can make a person’s head spin with uncertainty even if fixing the marriage seems impossible. Many couples simply carry on and try to keep up appearances.
Statistics don’t lie (usually), and recent research has revealed that one in five people, especially women, feel stuck in an unhappy marriage but will not divorce for fear of financial hardship.
My friends in the therapist community agree with this statistic, saying that for many of their divorcing patients financial anxieties are near the top of the list.
These concerns manifest themselves in the form of many questions:
One of the flaws in the divorce process is that there is no easy way for people to assess the financial side of the divorce decision. The result is that they stay in a place of fear and uncertainty, hoping that problems will fix themselves, or jump into divorce mode and hope for the best.
I propose another approach, where people get the answers they need to feel completely informed about the financial part of their decision to divorce. It is formally called the pre-divorce financial assessment, but I like to refer to it as the “financial reality check.”
The Pre-Divorce Financial Reality Check
Seeing how your family’s finances would look as two separate households is not as easy as taking your assets and dividing by two. You can’t easily split a house in half (although some have tried), and there are many considerations that dictate what a court might find ”fair and equitable” in your settlement. You will learn all about them in this book and will realize there are many, many factors that come into play.
What the assessment gives you is a view of your future finances so you can make a divorce decision with confidence. It is an analysis run by a Certified Divorce Financial Analyst (CDFA) to project how your financial life may look years from now in terms of cash flow, savings, net worth, and other measures of financial health.
The assessment is built on many assumptions which you can adjust to generate potential best and worst case scenarios. You can easily create “what-if” reports to see how changes in any aspect of your finances affect you years down the road. All-in-all you get a clearer view of your future so you can make choices based on what is right for you and your family.
Other Parts of the Divorce Financial Equation
There is no way of knowing precisely what your settlement agreement will look like should you divorce, but there are some overall facts about finances that apply to almost everyone.
Getting Divorced Costs Money
Divorce costs money in the form of professionals needed to get your agreements negotiated and implemented, and get you re-established in your new life. These people include:
The simpler your finances the lower the costs are likely to be. But a divorce where one spouse owns a business or participates in complex executive compensation or pension programs will cost you more.
Taxes Can Take a Bite Out of Your Assets
Investments such as your home and stock portfolio may be subject to taxes if they need to be sold as part of the divorce. With few exceptions there will be some tax money sent to state and federal governments if they are liquidated. You may also have higher tax rates after divorce as you lose the opportunity to file jointly as a married couple.
Living Expenses Rise
You can expect your cost of living to rise if you split one household into two. Two households together almost always cost more than a single household. It is just a fact of life. One of the exercises we do in the pre divorce financial assessment is to help you get a clear idea about how much it will cost you to live separately.
Some Assets May Not Be Available Right Away
Some assets may be delayed in getting to you due to paperwork or other delays. Selling a home doesn’t happen instantly. Splitting retirement plans require special paperwork to be drawn up and can take months to be acted upon by the employer. And some assets like pensions may even require an ex to retire before being received. It is important to know how you will pay for living expenses while separated.
Being Married Ten Years or Longer May Increase Retirement Benefits
The title says it all. If you are a lower earning spouse you are entitled to half of your ex’s social security benefits if it exceeds what you have based on your own earnings record … if your marriage lasted ten years or more.
Making the Decision
There is much written about how to know if your marriage is really over. As the author of this book I can’t weigh in with an opinion as to what is best for you. But as a divorced person who has been in the single world for ten years now I will tell you that it is a decision that demands a mixture of pragmatism and a keen awareness about what nurtures your soul.
Therapists can help you with what is possible in the relationship and what is good for you as an individual. My suggestion to you is to combine this with a clear view of how your future may look financially and make a decision that works on all levels.
Of course no one deserves to be in an abusive relationship, and there are times when a quick exit is called for; but for most people there is value in taking time to make a measured assessment and leaving only when it makes complete sense to do so. You will then know in both your heart and mind that the time is right to move on.
Hang in there. It does get better.
This article is excerpted from “The Financially Smart Divorce”
Rhode Island is an equitable division state; courts divide property equitably. This does not mean equally but fairly. The court considers several factors if the parties have not agreed beforehand on distribution, including the duration of the marriage, each spouse's contribution to acquiring and maintaining the property, the best interests of the children if applicable, contribution of one spouse to the earning capacity of the other, and income, among other things.
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