DIVORCE
DOLLARS:
Get Your Fair Share
Financial planning before, during, and after divorce
Akeela Davis, CFP, FDS
Self-Counsel Press
(a division of)
International Self-Counsel Press Ltd.
USA Canada
Copyright © 2012
International Self-Counsel Press
All rights reserved.
Introduction
Alas! How light a cause may move
Dissension between hearts that love!
— Thomas Moore (1779–1852)
From the time you begin to consider it to the time your divorce decree is issued, divorce is a process full of loss. There is the loss of dreams, hope, and trust. There is the loss of self-esteem and confidence, the loss of a sense of security, as well as the potential loss of relationships with children, family, and friends. Is it any wonder that so few divorces are completed amicably?
During this time of immense emotional upheaval and the accompanying grieving, it is not surprising that your rationality suffers. You are trying to come to grips with a new reality in your life. But at the same time, you are expected to make logical financial decisions that will affect you far into the future.
Compounding this problem is the fact that you may find yourself making crucial decisions without sufficient preparation, advice, or understanding. The whole area of divorce and family law operates in a very gray, subjective environment. There are no hard and fast rules and no absolutes. There is little consistency in the application of the laws from state to state or province to province.
In the past, divorce was a territory in which only lawyers operated. However, lawyers are schooled in law, not finance, and a lawyer is not trained to advise you as to how the financial decisions you make today will affect you tomorrow, let alone 10 or 20 years from now.
The objective of this book is to help you prepare financially for a separation, and to help you understand the potential consequences of the choices you may find yourself making.
The above statement may sound cynical — but only until you look at the statistics. The numbers are shocking. In the year 2003, 2,187,000 Americans were married, and about 1,107,320 became divorced.[1] In the same year, approximately 145,048 Canadians were married, and 70,828 became divorced.[2]
Our decisions about money are very closely tied to our emotions. This book attempts to make you aware of some of the emotional flashpoints and how these flashpoints can affect you long after your divorce is finalized. Along the way, this book will acquaint you with spending patterns and the effects these may have had on your marriage and divorce settlement; the language of separation and divorce, as well as the divorce process itself; the ins and outs of settlement negotiations and interim and final settlements; and methods for calculating your post-divorce expenses and income. It will also examine the important questions of whether to keep or give up the house and will discuss the division of assets such as pensions, 401Ks, IRAs, and RRSPs. Finally, this book will examine life after divorce, or remarriage preparedness, as it is called: how a cohabitation agreement can help ensure your security and help you to deal with the financial issues of blended families.
Financial planning is not only an important aspect of divorce, but is also something that can help ease you into your new, post-divorce life. It pays to stay as calm as you can during this difficult time and make the best decisions possible for your future.
1. US statistics are from the National Vital Statistics Reports, Vol. 52, No. 22. These are provisional data for 2003.
2. Canadian statistics are preliminary data for 2003 accessed at www.statcan.ca.
1
Marriage, Finance, and Divorce
Lovers’ quarrels are not generally about money.
Divorce cases generally are.
— Mason Cooley (b. 1927), US aphorist
A large percentage of divorcing couples cited finances as one of the major areas of marital conflict. This is true for all income brackets. In her book When Money Is the Drug, Donna Boundy states that two common money issues fuel most marital fights: the first is unmet expectations (see Chapter 8 for more discussion of this factor) and the second is differing financial priorities. Ironically, most couples getting married, even for the second or third time, never discuss expectations or finances prior to the big day.
The psychological and emotional issues associated with money are numerous, and for the most part, lie outside the scope of this book. However, to illustrate potential problem behaviors associated with money in a relationship, I have broken down the behavior into two common patterns: spending profiles and risk profiles. It can be useful to have an understanding of these behaviors, because financial patterns that surfaced during your marriage can also influence the behavior of both you and your spouse during the divorce settlement negotiations. I will also suggest some strategies by which you may be able to make your path to a settlement somewhat smoother than it might otherwise be.
Spending Profiles
Spending profiles cover a wide spectrum of behavior. At one end of the scale is the ultra-saver; at the other, the ultra-spender. Fortunately, most of us fall somewhere in between these two extremes.
Savers
The saver profile is that of someone who lives very much in the future. Savers like to build their net worth so that they always have something saved for a rainy day. They certainly do not like living paycheck to paycheck. They buy less than what they can afford (that is, they live beneath their means). They use debt sparingly and only to acquire assets, then get rid of that debt as quickly as possible. Their assets (paid-off home and car, money in the bank) give them a tremendous sense of security. They usually portray a stable, solid existence.
Spenders
Spenders live very much in the present. They want to experience today, because they may not be here tomorrow. Traveling and enjoying the best life has to offer in food, clothing, and activities are, for them, the things that make life worth living. Spenders live well beyond their means and use debt to make up the shortfall. They will have the high-ratio mortgage on the grand home and will obtain a new — but leased — Mercedes every two years. They appear exciting, fun loving, and are very confident that they can handle whatever the future brings.
Savers, spenders, and conflict
Given these profiles, it is not difficult to understand the conflict that arises when a spender marries a spender, or a spender marries a saver. The degree to which a couple will be able to resolve their financial problems depends on many factors, one of which is where each of them is on the saver/spender spectrum.
The