Managing Your Finances after Divorce

Divorce can be a traumatic, demoralizing experience. When you’ve built your life with someone for 20-plus years and always shared life’s big moments with your ex-partner at your side, it can feel like the rug has been pulled under you. And it comes with so many conflicting emotions: first you’re happy and relieved that this tumultuous time period is now over and behind you, then you’re angry for all the things that were said during the end of the marriage, then maybe you feel jealous of your best friend’s “perfect” marriage, then guilty that the divorce is affecting your children, too, and then just sad and hopeless about everything altogether.

If you read this and thought “Yep, that’s me,” don’t worry, you’re not alone—it’s a lot more common than you think. The divorce rate among adults aged 50 and older doubled between 1990 and 2010.  A study from AARP found that among women over 40, 66 percent asked for the divorce, while only 41 percent of the men did.

During this time period, when it feels like you’ve lost the roadmap for life, I’m sure the last thing you’re thinking about is “financial fitness.” What’s the point? Everything has become a disastrous mess personally—why try to fix things up financially?

But it is important, and setting up your financial plans is one way to get control back in your life and set yourself up for the life you want.  A recent GAO report found that women after age 50 faced a 41 percent reduction in income following divorce, while men’s income reduces by an average of 23 percent. This isn’t fair, so that’s why it’s crucial to ask the right questions and to have good counsel, both legal and financial, after divorce.

Here four key questions you should ask your financial advisor and lawyer:

1. How will we divide our investments and other property?

Legal methodologies for answering this question vary from state to state, but one foundational principle is that the marital property must be divided equitably and fairly (and this does not always mean it must be divided equally).

People in midlife typically have established careers and made investments, and it is very important for women to be strategic as they navigate the division of the estate.

Much depends on the nature of the property:

  • Divvying up stocks, bonds, and other marketable securities can be fairly straightforward, once the initial decision is made about what constitutes a fair distribution.
  • But real property, stock options, and collectibles can present more complex problems.

2. What about the home?

This is an area where emotions can run high, especially when you’ve raised your children and played with your grandchildren in that home. But your home is also an asset, and you need to view it as such.

It rarely makes sense for one partner or the other, both now on a single income, to try and retain the marital residence. If the decision is made to sell, obtain a fair appraisal that both parties can agree on. When this is not possible, each party may wish to order an appraisal, and the two can be averaged to arrive at a mutually agreeable selling price.

3. What about the retirement assets?

If both parties have established careers that include 401Ks, IRAs, and other retirement plans, this may be much easier. But in many cases, the woman left the workforce to care for their children, and even if she is currently working, she may have fallen behind in both earning power and accumulated assets for retirement, due to years out of the job market.

If a portion of one party’s retirement accounts is to be handed over to the other, a qualified domestic relations order (QDRO) will be required. Getting a QDRO is typically neither quick nor inexpensive, so understanding how the costs of obtaining it will be distributed is important.

4. What will my monthly income be?

If you have an established career, this may be less of a question, although it will be important to establish a workable budget. If spousal support is needed, you should work closely with your financial advisor, attorney, and CPA to arrive at an accurate, justifiable request.

Divorce is one of life’s most trying events, and unfortunately, it comes with financial implications. Even though everything feels awful now, it won’t always feel that way. Setting up your financial plan is one way to get control back in your life and set yourself up for the life you want.