For some going through the divorce process, it makes sense to consult with a vetted and trusted financial advisor. This individual should be willing and able to work with your attorney and you in developing strategy or calculating risk and benefit scenarios for various outcomes of your matter. Making informed financial decisions is always a wise move. This can be even more so when you are about to receive a sum of money and/or assets which you have previously either never controlled or managed. This is also true where money or assets you have had access to are about to be shared, hence impacting your long-term financial goals. Getting a financial advisor involved early, rather than later in the process, can help clients make difficult but financially smart decisions for their new futures.
Michael Kay is a Certified Financial Planner(TM) and President of Financial Life Focus, LLC, a Fee-Only Independent Registered Investment Advisory firm in Livingston, New Jersey. Michael is a prolific writer and has become a friend over time. You can read more about him here. Just a few days ago, he and I were discussing the importance of clients selecting the right advisor(s) and educating themselves about the financial pitfalls of divorce. Michael made some good points that I’d like to share with you.
“Life as a couple is full of “we,” “our” and “us.” What do we want in our lives? What will we do in retirement? What do we need to plan for? Life planning was about your dreams and your partner’s dreams melded into a harmonious combination of “our.”
Divorce changes all of that.
You have to start reorienting from we to me.
It becomes a time to examine and rebuild your life—and your money—as a single person. The goal? To provide a life that has meaning, joy and financial stability.
In Financial Life Planning, we look at your life and your money as a unified, melded values-based plan of action. For example, think about the major aspects of your life beyond finances—health, leisure, work, community, home, family, learning, inner growth. They are all connected—which means you must consider them all. In order to live the life you imagine, start by defining your values and your dreams in each area. And then ask yourself—what needs attention, shifting or support?
Of course, mapping out your new, exciting and meaningful life needs to be incorporated with your financial reality. Are you struggling out of debt or newly free from an overspending spouse who heaped financial misery on top of everything else? Beginning anew is a step-by-step process: an alignment of your shift in reality to rebuilding financial stability.
You’ll want to examine your complete financial life as a single, including things like risk management, investments, cash flow, taxes, retirement and estate planning. In most couples, there is one person who is dominant in handling the finances. If you were not that person, financial education is probably your first step.
If your education and comfort around money is lacking, don’t worry; it’s not like it’s quantum physics. Getting comfortable is all about getting a handle on your money and there are plenty of resources around to help. Don’t be embarrassed if your financial knowledge isn’t what you believe it should be. It is the one area where many people feel profound regret if they lack know-how. But honestly, you have permission to climb down off your own back. Financial knowledge is not God-given, nor is it genetic. Like everything else, it takes time and desire.
As a single person, risk management is of particular importance. Unless you have dependents, life insurance might be less important, but disability insurance becomes more important. Your emergency fund probably needs to be larger, as there is no second income to fill the gap.
Cash flow planning could be incredibly smoother or more challenging depending on your income and your spending habits (and the spending habits of your ex). Receiving or paying alimony or support makes cash flow management critical. If you have trouble creating a workable cash flow management system, it’s time to find a planner that can help guide you.
Rethinking your estate planning as a single person is vital. Surely you don’t want your ex making medical decisions for you or receiving a windfall upon your death. So be sure to change your Will, Power of Attorney and Health Care Directive as soon as possible, along with beneficiary designations on life insurance and retirement plans.
We each have a deep emotional connection around money. It brings us comfort or provides stress. We learned about money pretty much the same way we learned about relationships—by watching our parents from a very young age. For better or worse, they shaped our beliefs around money and relationships.
Think about your beliefs about money for a moment. Is money a tool or is it a source of conflict? Do your beliefs support your success or is some modification in order? Now could be the perfect time to examine your belief system. And then dive into making any changes that will move you toward the life you want most.
Life as a new single is about possibility. It requires resilience and the ability to shift your thinking (and doing) from where you are now to where you want to go. Very little good comes from looking back, except perhaps to learn necessary lessons. Personal evolution can be a joyful act of emergence and growth. Just make sure your money life supports your dreams.”
Oftentimes, the stress of the divorce process can cause the otherwise successful, productive and decisive individual to face a period of temporary inertia. There are so many BIG decisions to make, so many possible outcomes that flow from those decisions and what feels like no time to do it. Take a deep breath, grab a snack and be prepared to think about these major financial decisions and what your goals are for the next chapter. Avoiding the tough decisions doesn’t make them go away. They only fester and grow more intimidating and/or complicated. Surround yourself with the right “team” – from attorney, financial advisor, therapist, to family and friends. With sound professional advice and the self determination to move forward, you can avoid the pitfalls and come out of the process with a better you.
Sandra C. Fava is the editor of the Riker Danzig Family Law Blog and heads the Family Law Practice Group of Riker Danzig Scherer Hyland & Perretti LLP. Sandra is resident in Riker Danzig's Morristown, New Jersey office though she practices throughout New Jersey. You can reach Sandra at (973) 451-8453, or email@example.com.