Don’t Turn Divorce Into A Costly Donation
March 23, 2015When marital relationships come to a messy end, it can be difficult for the couple to find anything to agree on. One thing that men and women going through divorce generally do agree on is that arguing about money is a top predictor of divorce. Research suggests that arguments about money early during a relationship increase the likelihood of divorce. Many individuals who have gone through a divorce can attest to the fact that money quarrels don’t always end after the divorce proceedings have ended. In today’s blog post, my colleague Paul Wannemacher explores the financial impact of this emotional life transition.
“Nothing throws someone’s life into a panic like a divorce as it’s the unraveling of what’s meant to be the ultimate partnership. I’ve lived through this experience personally and have a heartfelt understanding for people who share their divorce stories and financial situations with me. Recently, I’ve run into a couple of situations that disturbed me but were food for learning – situations that looked like one spouse’s emotional upper-hand was dealing the other spouse a financial backhand.
In one case, Sharlyn had been in the divorce process with her lower-earning ex-husband well over two years. He announced his separation by moving in with a financially secure female coworker and left Sharlyn with the mortgage, the private school and college bills, and a host of high ticket purchases opened in her name just prior to the separation. Sharlyn revealed a pattern of marital verbal abuse and dominance that carried into the divorce negotiations. He no longer had personal assets or retirement savings that could be found, and his offer was to take 2/3rds of her retirement or drag on the divorce proceedings as long as he’d dictate. This successful manager now faced an unmanageable situation, and she was emotionally spent to the point of seriously considering settlement to end the pain of his continued delays.
In another recent situation, the tables were turned – Elliot was a successful engineer but was living on his brother’s sofa and wanted help with his financial nightmare. His divorce was settled two years ago, but his settlement was bankrupting him – he was paying alimony and child support based on a prior, higher paying job and his ex was occupying his prior home with his children but not paying the mortgage. Since their settlement gave the mortgage to him but title to her with conditional splitting of the home equity at sale, she saw no need to continue payments when Elliot would be forced to protect his investment if she didn’t pay.
In both cases, the toil of the divorce forced two very intelligent people to make a critical mistake. They assumed giving extra to the divorcing spouse would either prove their love for the ex-spouse and children or make settlement more tolerable by ending the negotiations sooner. They were willing to “donate” property, even to their detriment – in Sharlyn’s case, the difference amounted to over $150,000.
They also thought saving money on legal and financial preparation would somehow make the process more affordable. In Elliot’s case, he chose to negotiate his settlement himself with his ex-wife’s attorney to save costs that were burying him at the time. (He ended up paying her attorney fees anyway.)
In both cases, an investment in better representation and consideration of their long-term finances might have kept their cases more equitable, and to me it seemed the logical investment to make. In Sharlyn’s case, her legal representation reflected her own conflict avoidance, and it took doing a financial plan presenting her pre and post-divorce resources to gain her focus. I asked her if she’d consider investing $10,000 for new legal help if it was certain she’d lose $150,000 otherwise, and if her ex wouldn’t help now with their children’s education, how would she do it with $150,000 less wealth to work with? In Elliot’s case, his avoidance of the expense of reopening his settlement agreement was costing him $1,900 a month plus amounts he was voluntarily spending on his children’s education. When I showed him the certainty of his six-figure salary financing a severely under-financed retirement and no education savings, his attitude toward investing in helping himself and selling the house took a 180 degree turn.
Making important financial decisions is tough enough anytime, but divorce emotions can make clear judgment go out the window. If you’re facing divorce or separation, don’t go through it alone. Get legal help from a family law specialist who can advocate for you, knowing you might not have the emotional capital to do so yourself. And just as important, invest in an impartial financial planner who can help you consider the impact of any property settlement and a plan for recuperating. Save your donations for the charity of your choice!”