Getting Divorced? Tips to Keep your Finances in Order in Tough Times
If you’re worried about selling your house, your retirement fund and whether you’ll have a job next week or not, you ‘re not likely to get divorced. Financial experts say the newest round of U.S. financial woes, caused by the largest attempted banking bailout in America’s history, is having another side-effect. While poor people and rich people will continue to file for divorce, the folks stuck in the middle are considering sticking it out for a few more years, until their finances recover.
“New Jersy divorce lawyers are reporting a decline in filings… mostly the middle class that can’t afford to sell their home,” said Noah Rosenfarb, a certified public accountant and founder of the web site that educates women about finances and divorce.
“The poor will be poor — whether married or divorced — if you have nothing, there’s nothing to divide or lose. It’s the middle-income homeowner that can’t afford to divorce right now. They’d need to sell their house, and they might get less than they owe on the mortgage. They’d have nothing to put down on a new house, and you can’t get a ‘no money down’ mortgage anymore,” he said.
West Palm Beach, Florida divorce attorney Charles Jamieson agreed. “People, who are in much more modest finances, are in a different position. They have significantly less income and liquid and hard assets to divide,” he said.
“Generally speaking their highest valued asset in middle class and upper middle class families is the marital residence, which if sold would generate significant money for the divorcing spouses to divide. With the real estate market in the doldrums in Florida and elsewhere, these families are stuck because it will be very difficult, if not impossible, to sell their home within any reasonable time period. If they are barely or just comfortably supporting one household, spouses in these troubled relationships directly or indirectly realize that they can not support two households. Despite their troubled or disintegrating relationships, more of these families are not commencing a divorce,” he said.
In divorce cases involving people with more money, Wall Street’s woes are simply another reason to fight, said New York divorce attorney Daniel Clement. “To quote a Billy Joel song, ‘They started to fight when the money got tight.’ Money, in many moneyed marriages, is a lubricant.It enables things to happen. When money is not freely available, is when the free spending has to stop, and when the good times fueled by spending become less frequent, there is friction. Spouses begin to rub each the wrong way. The result is more breakups, separations, and divorces,” he said.
Jamieson thinks Clement is right. “If one is making a million dollars one year and $100,000 dollars or less the next year, then that family is going to have to do some significant belt tightening. One might think that this family can not afford to get divorced. However, that speculation does not take into account all of the liquid or near liquid assets of such families in the form of stock portfolios, retirement accounts, savings, and other tangible hard assets of the parties, such as multiple residences, vehicles, and other amenities of a lofty life style. In essence, these people are getting divorced because the income is significantly down but there are still significant liquid and hard assets to divide to keep everyone quite comfortable for a period of time. People are getting out of troubled relationships while the getting is good and before the economy and their reduced incomes can further erode their liquid and hard assets,” he said.
Rosenfarb said the biggest issues for divorcing couples with money in the last decline in deferred compensation and stock option values, which “puts lots of pressure on a case.” He explains, “If you thought you were getting 50 percent of $5 million and now it’s only $2 million, that puts a lot of contention around the alimony and child support amounts.”
Certified financial planner Elizabeth Cox has another theory: “Bank accounts/liquid assets are mostly in former wage-earner’s name. As economic times get rough, the dependent spouse may have no voice in financial decision making. Often, only through divorce can (s)he slow the possible liquidation of assets and try to preserve his/her share of the marital pie.”
“In my experience, I have seen many dependent spouses file (for divorce) when the income stops flowing because they feel that the nest egg is being squandered and they have no control,” Cox said.
EIGHT TIPS TO HELP DIVORCING COUPLES IN TROUBLED ECONOMIC TIMES
1. Check if your investments are insured.
Rosenfarb makes this suggestion: “Look at where your cash, CDs, stocks, and bonds are held and determine if you would be insured in the event of a bank or institution’s failure. If you’re not insured, consider the costs and benefits of moving the uninsured portion to another bank or institution. Also, know what you would do if you were unable to gain access to an account for a few weeks or months. If you couldn’t live without access to a particular account, consider dividing the money into accounts at two institutions to reduce the risk that you would not be able to access your money when needed.”
2. Pay your debts on time.
According to Rosenfarb, founder of a web site that educates divorcing women about financial issues, another tip is simply to pay your bills on time. “Ensure that any obligations of your former spouse are being met timely — child support, alimony and/or life insurance premium payments. If they fail to meet their obligations, get help immediately,” he said.
3. Have a rainy day fund.
“Consider what you would do if your spouse lost their job and as a result, your alimony and/or child support were reduced. Have a plan, just in case. Hopefully you won’t have to implement your plan, but if you have to scramble after the fact your decision-making ability may be impaired,” Rosenfarb said.
Greg McBride, the senior financial analyst at Bankrate.com, agreed: “More so than ever, it pays to have a rainy-day fund for unplanned expenses. The added urgency for divorced parents is that this savings could be vital if your ex loses a job and is unable to make child support payments while out of work.”
“You should consider keeping investments liquid in separately titled short term FDIC insured CDs,” said Lili Vasileff, a certified financial planner and CDFA, who is president of the Association of Divorce Financial Planners.
4. Think twice about leasing.
“Avoid long-term leases or rental agreements until you know where you will want to live after the divorce. Moving twice and breaking contracts are expensive,” Vasileff said.
5. Selling your house?Consider home expenses.
Do not agree to carry all of the fixed expenses for residing in the marital home while you put it on the market to sell. This down real estate market may drag out for a long time.
6. Got laid off? Downsize now.
“If one spouse is out of work and you’re starting or in the middle of a divorce, downsize spending as soon as you can,” Vasileff suggested. “It is crucial to reach an agreement to preserve assets if needed for meeting daily expenses. Work through the attorneys or a financial planner to monitor spending with joint approval,” she said.
7. Keep your health benefits.
Vasileff suggests that couples who are divorcing “keep existing health benefits as long as possible and think carefully before you end one plan without securing coverage elsewhere.” In an economic downturn, losing family health benefits can quickly become a real problem.
8. Keep your budget in mind.
Vasileff suggested both parties in the divorce make saving money a priority by deciding how to reduce overhead and live without luxuries. “Do not borrow against your retirement unless absolutely necessary,” she said. And, she added: “Pay down a little on all credit card debts each month on time. Make it a top priority to preserve your credit score and access to available credit.”