Divorce Dollars: Get Your Fair Share

By Akeela Davis

At least 40 percent of all new marriages today will end in divorce. The financial consequences of divorce can be traumatic. Many people who get divorced are left with little money, no income, and no credit rating. In some cases, if one partner looked after all the family’s finances, the other partner is left unprepared and overwhelmed by the financial consequences of divorce. Divorce Dollars is a complete guide to financial planning, demonstrating in a step-by-step manner how to overcome the financial challenges of divorce and lead a financially healthy life. The book addresses everything from dividing the assets to retirement planning. By using examples of real people, Akeela Davis demonstrates how everyone can handle the financial challenges of divorce using careful planning and money smarts.

• Language: English
• Publisher: Self-Counsel Press
• Release date: Apr 15, 2012
• ISBN: 9781770408203

Akeela Davis

Akeela Davis is a certified financial planner who specializes in divorce and separation issues.

Book preview

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 saver/saver marriages, while they may have issues as to the degree and type of saving, usually experience the least amount of financial conflict.

In a spender/spender marriage, however, issues are usually about lack of money. Since both are spenders, the cash and credit available to meet family bills or to pursue more immediate material pleasures are in short supply. Because both parties are confident of their own ability to handle their debts, each will often blame the other for any money problems they may be experiencing. These couples are crisis driven.

The third type of union is the spender/saver marriage, and that pairing is a minefield just waiting for someone to take a wrong step. The issues in this type of marriage involve necessity versus luxury, saving for the future versus living for the moment, and stability versus fun. Quite often, the very characteristics that attracted each member of such a couple to the other are what will cause the most strife between them. The stability of the saver is now viewed as dullness or miserliness. The fun-loving spender is viewed as wasteful and irresponsible. Each one’s financial behavior threatens the basic emotional needs of the other. The inability of both to empathize and relate usually leads to divorce.

Risk Profiles

Risk profiles are similar to, but also quite different from, spending profiles. Risk and spending profiles may combine to form a completely different behavior than either alone would indicate. Risk profiles can be illustrated by looking at how an individual views insurance (a defensive action) and investments (an offensive action) as part of his or her overall financial security, and may be recognized as follows:

Risk profiles and conflict

Just as in the saver/spender spectrum, partners with dramatically different risk profiles may experience more conflict in their marriages than those with similar profiles.

Even the members of saver/saver marriages can come into conflict when the risk profiles of the individuals are very different. If one member of a couple has an ultra-conservative risk profile and the other has a moderate- or high-risk profile, conflict may arise regarding where and how their savings are invested.

Sometimes, one partner may feel pushed into a category where he or she does not feel he or she belongs simply to offset the perceived risks taken by the other partner. Very seldom is this issue openly discussed, but the underlying resentment it causes is added to existing conflict. It can become very nasty indeed.

It is possible for couples with different profiles to resolve their financial disputes and create a workable solution. However, to accomplish this, the couple must assess their financial compatibility early in the relationship, identify potential conflict areas, and be committed to developing solutions to meet each partner’s needs.

Spending Profiles, Risk Profiles, and Divorce

Sadly, more often than not, couples are not even aware of their personal money motivations, and during the separation and divorce process, these same patterns will come into play.

For instance, if you are a saver and find yourself having to come up with spousal support payments each month, you may not want to support what you see as your spender partner’s extravagant lifestyle. Alternatively, if you are an ultraconservative person, you may feel the need for a large settlement in order to feel secure, and your