We have all seen it before: someone that you care about is left in financial straits after their divorce. Divorce directly affects over 4 million people – husbands, wives, children, parents, co-workers – every year! Many people are met with surprises in divorce, including financial ones, because divvying up money and assets between two parties can be much more complicated than it seems.
Why is divorce financially damaging? Most people lack guidance or an expert to consult regarding their available income and assets, and instead rely on their attorneys. Yet, lawyers are educated in laws and court proceedings, not finances, for the most part. Attorneys won’t be able to offer the same kind of guidance that a financial professional can provide, especially when concerning the effects of a divorce settlement on present and future finances. Without this proper guidance, people often make the same financial mistakes; whether that is fighting over the house, underestimating the amount needed for child support or alimony, or mismanaging retirement plans.
In the case of one of our clients, divorce was sprung on her by her husband of 31 years. Throughout their marriage, her husband was the breadwinner and took care of all the finances. She didn’t understand her spending or what she needed to ask for during the divorce process to maintain her current lifestyle, so she took charge by reaching out to meet with a financial advisor. We helped guide her through the divorce process, educated her on managing her own finances, and empowered her to become confident and comfortable with money.
Similarly, another client’s ex-husband made all the decisions and controlled all their money. She came to us in the middle of her divorce, and we helped her navigate the separation of their assets. Originally, she wanted to leave all her money for her ex-husband to keep managing, but, over time, we helped her take control of her own finances. She was empowered to become completely independent of her ex-husband and to establish a financial future that aligned with her own wishes, rather than her ex’s.
It is vitally important that you get what you deserve, financially, as our clients did. What’s missing in most divorce processes is the financial expertise to accurately forecast long-term effects of the final settlement. People often overlook the need for a Certified Divorce Financial Analyst (CDFA®) or other financial experts. However, having a CDFA can drastically change the financial outcome of a divorce. With the use of a CDFA, our clients’ divorces resulted in fair financial agreements in which both women left their marriages feeling confident and secure. Without a financial professional, what may seem like a fair divorce settlement may turn out to be an extremely inequitable financial agreement, unforeseeable by the divorcing partners and lawyers in the moment.
Statistics help reveal the economic consequences and imbalances of divorce settlements, often showing that financially, men benefit exponentially from divorce while women end up either stagnant or depleted. Stephen Jenkins, a professor at the London School of Economics, reports that separated men are likely to see an instant and continuous increase in income (about a 25% immediate increase), while another study found that their female counterparts suffer a 41% decrease and rarely recover to the pre-divorce household income level. With the help of a financial professional, though, the story behind these statistics can be turned around to show a more balanced financial exchange between ex-spouses and result in a growing and prospering financial state for both partners.
This financial expertise can also lead to more settlements between parties instead of lengthy, expensive court trials which deplete your money and assets. Children can pick up on feelings of instability, and having a clear understanding and open discussion of the family finances can help establish a stable family environment, despite the separation and divorce. Talking about money may not be the easiest of conversations, especially in a divorce, but approaching such a discussion with civility, and focusing on what’s best for the family, can help produce a fair financial agreement. Although hiring a financial advisor may seem to complicate the divorcing process by adding one more person to the chaos, a skilled advisor can make the divorce much more smooth-sailing for everyone involved.
Arm yourself with the best financial advice you can get during your divorce. You certainly shouldn’t have to do it alone. Ask your attorney to make a personalized recommendation for you, or visit the Institute for Divorce Financial Analysts’ website, which provides a comprehensive list of CDFAs local to you. You already have enough to worry about during your divorce. You should not have to worry about your financial future, too. Be smart. Be educated. Become financially secure.