How to Protect Your Financial Future During Divorce

How to Protect Your Financial Future During Divorce

Most people think their greatest asset is their house. They are wrong. Checking account? Wrong again. For the vast majority of women, the most valuable asset we have is our career and earning capability. This is the asset we have the most control over to produce the money we need to live a fulfilling and financially secure life.

However, earning high incomes can be more difficult for women in the workforce, as women are more likely to have periods when they are not available to work full time, unlike most men. Sadly, career headwinds can become even more of a factor during a divorce, as additional responsibilities pile on, like more time to care for children, other housework duties, and dealing with a time-intensive divorce process.

The time you do allocate to your career should pay you as much as possible. Investing in oneself is the best investment anyone can make to increase earnings, and education is a great way to do just that. Look into furthering your degree and certifications to help support your career progression and be sure to investigate formal and informal mentoring programs as well as on-the-job training. The financial impact can be significant.

For example, a 45-year-old woman who is able to increase her salary from $50,000.00 to $60,000.00 a year will bank an extra $210,000 by the time she retires at age 65. But wait! If she were to invest this raise each month, the future value of her $10,000 increase could grow to nearly $420,000 assuming a portfolio return of 6.00% per year. The most powerful way to leverage this savings is by adding the extra dollars directly to her company 401K plan, which may offer a match or profit-sharing contribution, supercharging her portfolio value even more.

It’s Never Too Late to Relaunch Your Career

According to Kelley Joyce, a career coach who specializes in guiding women who want to be happier and make more money in their work, you are never too old to start or relaunch your career. Joyce shares, “I advise many highly-educated women from prestigious schools who have never had a career or stopped their lucrative careers decades ago in order to manage their family at home. They have so many valuable skills and with the right support they can absolutely get back in the career game!”

Lisa Zeiderman, a New-York-based divorce and family law attorney, cautions women to focus on their careers throughout their marriage. The spousal support/maintenance laws are not very kind to women. Therefore, women must be focused on building their own source of income for their future. While taking time off to raise children and taking care of the family may seem enticing and may even be encouraged by your spouse, your spouse may conveniently forget those conversations when proceeding through a divorce and facing monthly alimony payments to you. Suddenly, the narrative changes to “I kept asking her to go back to work and she refused.” Further, make sure that you have access to the assets that you and/or your husband are accruing. Letting your spouse solely control your assets may leave you in a very difficult place during a divorce. Finally, Zeiderman maintains that building a career during the marriage will be an example to your children and gain you respect in the household.

Understand What It Costs to Live

If you have not actually sat down and calculated what you will need every month to protect your financial future – granular stuff like mortgage, utilities, a weekly dinner outing, and so on – then you are not alone. In fact, only 38 percent of people have even tried to do the math, according to a study by Employee Benefit Research Institute.

No one likes to pore over bank account and credit card statements, but women can hurt themselves by skipping this step and not using their actual past spending data to create their budget during a divorce. Instead, some women will ballpark their costs, which invariably means that they round down their spending. It is only too easy to overlook expenses when you do not have the actual numbers in front of you. One-time events such as a New Year’s dinner or purchases such as a new cell phone to replace the lost one are typically not factored in. One month’s shocking billing is then followed by an equally surprising credit card statement with unanticipated expenses such as a tooth extraction or emergency roof repair. In aggregate, these expenses can put a large dent in even the most carefully managed budgets.

Others may fail to recognize many additional costs they will incur after ending their marriage, or new expenses that will crop up as their kids grow older. I never knew orthodontia or summer camp could be so expensive!

Looking into the future is also essential when accounting for decreased COVID spending. During the pandemic lockdown, expenditure on many of our normal activities was put on hiatus or completely erased. As the economy continues to open, many of us will resume our bi-weekly visits to get our nails done or weekly trips to Soul Cycle, not to mention all the costs that will reappear as we reenroll our kids in afterschool programs and other activities. It is crucial to accurately record all the costs from a more typical year and thoroughly understand your spending. This exercise will help women walk away from their marriage with the knowledge needed to maintain their lifestyle as a newly single-income household.

Tailor Your Portfolio to Your Needs

A recent study conducted by UBS found that 85% of women manage everyday expenses, but only 23% take the lead when it comes to long-term financial planning and investing. Learn the value of all of your accounts and how they are invested. You will need to maximize the value of the money in your portfolio to meet your new future income and growth needs.

Leaving investment accounts allocated exactly as they were when you were married may or may not be the best decision. Avani Ramnani, CFP®, CDFA®, CPWA® and investment expert at Francis Financial, shares a recent cautionary tale about a client who let her husband direct her investments after they were divorced. Ramnani recounts, “At Fran’s request, I reviewed the portfolio she received from the divorce and discovered that nearly 40% of her money was invested in risky emerging-market stocks. These were not appropriate for a single woman in her mid-60s who wasn’t interested in playing the market. We created a new investment strategy that was more appropriate for her with lower-risk stocks and bonds. Now, Fran has the income and growth she needs to live, and the peace of mind of knowing that she is invested safely.”

While Fran’s situation was extreme, many women do not focus enough on their investment portfolio. Keeping your investments the same after divorce is a lot like trying to wear your ex’s pants. They might fit in a few areas, but most likely are not perfectly suited to you.

Having an investment diversification that is right for your unique goals is critical and will give you broader exposure and more stable investment returns. Be sure to monitor your investments and check on your portfolio at least once a quarter. Refrain from logging in daily as investors are more likely to become stressed when they witness fluctuations in their portfolio. When people get scared, they are more likely to pull out of the market and end up veering off the course of being a long-term investor. Building a diversified portfolio, and staying the course, is the best way to protect your assets in the long term.

In conclusion, to protect your financial future after divorce you must make the most of your income, understand your expenses, and tailor your portfolio to support your new life.

Many women want to work with a financial advisor they trust and who will listen to and hear them. Finding the right person or firm may take some effort, but the investment of time will be well worth it in terms of your peace of mind. Interview only financial advisors who are fiduciaries and fee-only. A fiduciary advisor has a responsibility to act in your best interest by giving you independent, unbiased advice. A fee-only financial advisor only receives compensation from clients and does not earn commissions or kickbacks for selling you products such as investments, life insurance or annuities.

Source = Stacy Francis