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Coming to Grips With the Financial Fear Factor

If you are in the process of dissolving a marriage, you are painfully aware of the horrendous stress divorce places on everyone involved. From the state’s point of view, the process is essentially legal and financial. But from your perspective, divorce is a personal tragedy that can be emotionally devastating. In my practice, I see clients all the time whose stress stems in part from insufficient understanding of their own finances. Stress over money issues is virtually unavoidable in divorce, and stress levels necessarily rise when you are asked to make life-altering decisions about money. And if you are not financially sophisticated, the stress can be almost unbearable. It pains me to see clients who seem totally lost when it comes to deciphering net worth statements and property division proposals. They don’t know which way to jump, and their anxiety levels are off the chart.

If you are feeling anxiety rooted in a nagging sense of financial insecurity, you are not alone. I see fear in my clients’ faces all the time. That fear may present itself as anger, tears, bravado, withdrawal, and belligerence. Trust me: None of those responses are much help when you are trying to craft a strategy for moving forward. If you are currently in mediation or considering it, you know that good information is essential to getting good outcomes. Playing “hide the ball” is not a good thing. In the case of personal finance, however, you may not know the ball even exists. You owe it to yourself to have good information – and to understand that information – when you sit down with the other party in mediation.

I work with clients every day helping them map out the long-term financial considerations of life after divorce. A tool I use is a proprietary financial modeling software that graphically demonstrates the long-term impact of all the financial “what if’s” included in various settlement proposals.

The stories the graphics tell can be compelling. Strong visual images help clients get their brains wrapped around the often complex financial implications of divorce. Financial information presented graphically can also prove quite persuasive in the negotiating process.

My expertise ensures that the inputs are reasonable and the results reliable, adding to my clients’ comfort level and providing them firmer ground on which to stand in negotiations or, if necessary, in court. Knowledge is power, and when my clients feel better informed, they make better decisions.

Interestingly, I am seeing a noticeable increase in the number of clients whose marriages are ending later in life. At first blush, you might expect these divorces to be somewhat easier on the parties: The children are older and on their own, there is a lot more equity in the house, and there are plenty of assets to divide.

Instead, the stress seems to be worse in many cases. Why?

Part of the reason is the way we traditionally run families in this country. Typically, one spouse has primary responsibility for the generation and disposition of income. And typically, that partner is the husband. He earns the income, he determines or administers the household budget, and he makes most of the decisions on investments and savings.

In contrast, the wife who has spent decades doing what culture and tradition say she should – running the household and raising the next generation –may not have paid sufficient attention to what the family’s assets really are, where they are, and what they are worth.

While one partner has been out in the business world adding to his experience, earning power, and contacts, the spouse who has been at home (or who has been chronically underemployed in order to “be there” for the family) fears she is not as employable as her younger, better-educated counterparts competing for the same jobs.

It’s important to note that many states recognize the concept of “spousal maintenance” in divorce. It’s a good concept. It says that the individuals who contributed to the marriage with their “sweat equity” rather than cash income should expect a reasonable level of financial support should the partnership fail.

In practice, spousal maintenance can be disappointing. The courts with which I am familiar use financial “snapshots” to determine a fair level of spousal maintenance. The focus is on today’s assets and today’s balance sheet with limited regard for how asset values change over time.

That philosophy of emphasizing the short-term is magnified when it comes to division of assets in the final divorce decree. In every jurisdiction in which I work, the courts use financial modeling software that projects the future value of assets for the next 36 months – a span of time shorter than the typical car loan.

The only argument I have heard in favor of this limitation is that no one really knows what is going to happen to markets or jobs or residential values in five, 10, or 15 years, so it would be unwise and unfair to project the value of an asset in a divorce proceeding beyond 36 months.

Perhaps. But I would be very surprised if anyone would make decisions about their own personal finances or retirement plan based on financial projections that hit a wall at 36 months. People expect to see beyond the nearest horizon when they make long-term financial commitments. And rightly so.

Some of these same concerns surface in mediated divorces. After all, the parties in divorce – including the courts – are making long-term financial decisions. They should use instruments that model the long-term impacts of asset distribution.

My professional goal is to help divorcing families enter the next phase of life as two healthy, functioning units instead of one winner and one financially and psychologically battered loser. Fair settlements go a long way toward accomplishing that goal.

To the degree you feel you lack a firm understanding of the financial aspects of divorce, you may benefit from the services of a Certified Divorce Financial Analyst.


Donna Smalldon

Donna Smalldon is a principal in Applied Divorce Solutions, a financial planning firm in Portland, Oregon specializing in the financial issues surrounding divorce. She is a Certified Financial Planner™, a Certified Divorce Financial Analyst, a Certified Divorce Specialist, and holds an MBA. She can be reached at [email protected] or visit… MORE >

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