While divorce is difficult for everyone, women are particularly vulnerable to financial disruption. Studies reveal that in the first year after divorce, the wife’s standard of living may drop almost 27 percent, while the husband’s may increase by as much as 10 percent.
Quite simply, to escape becoming a depressing divorce statistic, women need to avoid getting screwed in divorce. I spoke to Wall Street veteran Carla Dearing, founding CEO of Sum180, an online financial wellness service, about the mistakes women make and how they can protect themselves.
Mistake: Letting your emotions determine your path.
Money is always emotional, but divorce amplifies this reality many times over. This is probably the time when you are least able to sort through the necessary decisions easily, but you need to make careful decisions now — your long-term financial health depends on it. Rushing into a divorce settlement because you just want to get it over with can spell the difference between a secure retirement and a strained one.
What to do instead: Reach out to a trusted friend for advice. A friend or family member with your best interests at heart can lend you the clarity and energy for the next steps you need to tackle. Share a glass of wine, talk, cry and accept the support you need. If your friend has been through a divorce herself, she may even recommend a great divorce attorney or divorce financial planner. If so, listen up! With your emotions all over the map, you need trusted advisers to guide you toward decisions that honor your priorities and align with your long-term goals.
Mistake: Failing to understand your financial picture.
Some women get into the habit of letting their spouses handle the family finances, or of compartmentalizing the family finances so that while you may be expert in one area (e.g., your household accounts), you are out of the loop in others (e.g., a family business). You can’t arrive at a fair settlement if you don’t have a clear and comprehensive picture of your financial situation.
What to do instead: Start getting up to speed on your financial picture right away. First, make sure you have access to all bank and investment account passwords and documents, as well as your recent tax returns. Check your credit reports for discrepancies. This may feel overwhelming. Fortunately, educating yourself about your finances doesn’t have to be something you tackle alone. Once you have gathered all your financial statements, your financial planner can help you organize and interpret this critical data.
Mistake: Accepting your spouse’s word about family assets.
You may be tempted to check out mentally, but you will get much closer to a fair settlement by staying attentive, engaged and, above all, skeptical.
What to do instead: Demand financial documentation. Even if the negotiations are proceeding amicably, don’t simply believe everything your spouse says about their finances. Verify the facts independently and document everything. Pay close attention to your spouse’s lifestyle and spending habits. If you suspect your spouse is being less than forthcoming about their income or assets, immediately ask your lawyer for advice. Your lawyer may recommend consulting a forensic accountant to uncover your spouse’s assets. You may also be able to force your spouse to produce financial documentation in court.
Mistake: Clinging to the family home.
Many women feel they need to keep the house because they’ve lived there for years and it represents home for the kids. This impulse is understandable, but now that your financial landscape is about to change (perhaps drastically), it’s not necessarily wise.
What to do instead: Do the math, then be brutally honest with yourself. Will you have enough future income to maintain the house? Remember, maintaining the house means more than paying the mortgage; it means covering utilities, upkeep and repairs. Once you set aside your emotional attachment to the family home, you may realize that moving to a smaller home or condo is best.
Mistake: Focusing on petty property battles rather than the big picture.
As you take inventory and divide assets, it’s easy to get caught up in battles over relatively minor possessions, such as furniture or memorabilia. This sucks up time and energy that you and your lawyer should be spending on bigger items, like spousal maintenance, child support or the house.
What to do instead: Be a savvy negotiator. Be willing to compromise on nonessentials, and save your legal and emotional resources for battles that will make a real difference in your long-term financial well-being. n