How to Get Out of the Divorce Sinkhole

March 15, 2013

Having spent many afternoons on a golf course and being of very limited ability in that sport, I have had had my ball land in some very interesting places. None of them would be as interesting, though, as the golfer in this story. His ball, along with his body, ended up in an 18-foot deep sinkhole. And, he got a separated shoulder in the fall. I’ve had bad days on the golf course, but never THAT bad! The good news is that he was pulled from the hole and his shoulder will heal very quickly!

As bad as that day was for the golfer, I talked with someone last week who had an even worse day. On the day we talked, his wife surprised him that morning by telling him that she wanted a divorce, and during our conversation we talked about his ongoing budget struggle (which was a factor in the breakdown of his marriage). His day certainly was worse than falling into a sinkhole and the healing from his day may take a much longer time. The financial recovery from a divorce can take an enormous amount of time, and sometimes there is never a full recovery.

If you are going through a separation or divorce, what can you do to try to bounce back financially so the rest of your life isn’t spent living paycheck to paycheck, stressed out, and always feeling like you’re drowning financially?

First, make sure that you don’t agree to a settlement that is unfair and skewed against you. Get legal representation to do the negotiation for you and make sure that you can live with the outcome of any potential settlement. Understand your net worth: assets vs. liabilities and what might be considered fair (not always 50 %!).
Understand when your cash flows start and stop. If you are receiving alimony, know when it ends. If you are paying child support, know when it gets adjusted upward or downward. Know your flows.
Understand “what else” you might need to pay for. Medical copays, the cost of sports or recreational activities, braces, college tuition…the list is endless. Know what your obligations are not only today, but in the future.
Don’t overspend on housing! The single biggest mistake I see people make is with housing. It may involve “hitting the reset button” with your expectations about the place you call home, but too many times, I see a person determined to stay in a home that took two incomes to fund when they only have one income. Because of a “too high” cost of housing, I’ve met people who have had credit card debt rise, stress levels increase, 401(k) contributions stopped and themselves headed toward financial ruin all in an attempt to hold on to a particular house / lifestyle. Here’s an interesting take on how much you can afford.
Talk with someone (like a financial planner) who can help you work through your financial situation. What are your new financial goals? Whatever your goals were pre-divorce, they’re going to change. What does your budget look like post-divorce? When do your income streams start and stop? What other changes do you need to make in order to not go any further backward financially?

Divorce is one of the biggest changes that can happen in your life. It will absolutely have an impact on your financial life. Are you prepared for that? You can be if you do a little bit of preparation prior to engaging in the process or talk with someone who understands how to recover financially from a setback. A divorce can feel like a financial version of an 18′ sinkhole but like the golfer, you can get out and recover.