This post (and the downloadable eBook) is inspired by my work with divorcing clients over the last 10 years, primarily in Manhattan and Brooklyn.
The following “harsh truths” might feel a little hurtful. I don’t want to hurt someone’s feelings, especially when they are going through a rough time.
However, I do believe that sometimes people need someone to tell it like it is, and sometimes I can deliver that message more effectively than their attorney. So here we go …
#1 – It’s Not Fair. It’s Math.
“It’s not fair!” is something I hear a LOT. I know. You are right.
Listen, if you contributed more to the marriage both financially and in terms of family responsibilities, that doesn’t mean you will “win” the divorce. And if your spouse had an affair or spent most of the money, the law doesn’t really care.
I am not a lawyer, but there are formula guidelines for child support and alimony. Your spouse can Google it and will probably be reluctant to pay more. And the starting point for division of marital assets is 50/50. There are reasons to deviate from that, and people can agree to pretty much anything, but don’t expect miracles from your attorney and don’t expect to come out ahead financially from where you started.
Two households cost more than one, so it doesn’t make sense that everyone gets to maintain their lifestyle. It’s nothing personal. It’s math.
#2 – Get a Job.
If you have been out of the workforce for an extended period, it is really hard to get back in. I recognize that, and I feel for you. It broke my heart to hear a female client say, “I guess I am just unemployable.”
But I disagree with women (and sometimes their lawyers) who think they should avoid looking for a job, so they can get more child support or alimony.
In my state, child support generally lasts until your child is 21 or graduates from college. Spousal Support (or alimony) could last 1/3 the length of the marriage. What are you going to do after that?
And both forms of support are based on Income. Not Expenses. Clients may be devastated to realize that the calculated support won’t cover their expenses. This is absolutely true. Maybe you will agree to a higher amount than the formula calculation, but both spouses will need to cut expenses or increase income. That’s the harsh truth.
Try to think long term. Support payments don’t last forever, and the longer you stay out of the workforce, the harder it is to get back in. Brush up that LinkedIn profile, reach out to your old network, or make a plan to go back to school. Getting back to work will take your mind off the divorce and making your own money will make you feel good about yourself.
#3 – Health Insurance May Be a Problem.
If you have been on your spouse’s family health insurance plan at a company with decent benefits, you have no idea how bad it is out there. You can buy health insurance through COBRA for up to three years, but the price will no longer be subsidized by the employer and may be several times more expensive than what you are used to. You can also buy health insurance through the NY State exchange. Depending on your income, you may get a subsidy, but the process may be confusing and unpleasant to say the least.
Many don’t know this, but people actually stay married for years because of the health insurance. Or wait until the person who needs it is eligible for Medicare at age 65. I was so relieved when the Affordable Care Act was passed because it seemed like a bad reason to stay married. At least now people with pre-existing conditions can actually GET insurance, but it will probably cost more than they expect.
#4 – You Saved for One Retirement, Not Two.
If you ever worked with a financial advisor, they probably provided some kid of retirement outlook or percentage likelihood of success. “Retirement” is kind of the default financial planning goal, and really just gives us a way to project, based on assumptions for earning and spending, whether you will run out of money before you die. And to be honest, most couples haven’t saved nearly enough.
Now cut that in half. You can plan to work longer, spend less and save more to ensure the comfortable retirement you were planning.
People ask me about divorced spouse benefits from Social Security. Here is the deal in a nutshell:
- You must have been married to your ex-spouse for 10 years or more.
- You must be unmarried. If you remarry, you can’t collect benefits on your former spouse’s record unless your later marriage ended by annulment, divorce, or death.
- The amount of benefits you get has no effect on the benefits of your ex-spouse.
- If you’re entitled to benefits on your own record, your benefit amount must be less than your ex-spouse benefit in order to receive it.
- If your ex-spouse died after you divorced, you may still quality for widow’s benefits.
The benefit is ½ your ex-spouse’s payment or 100% of your own, whichever is higher. Not both.
It’s better than nothing, but for most of my clients, it’s not worth it to avoid working to reap this amazing benefit 10 or 20 years down the road. Go out and earn your own.
#5 – Jerks Still Have Rights.
Assuming your spouse is not a violent person, you are probably going to have some sort of shared custody with your kids. Even if you disagree about school/homework/discipline or whatever. Kids need both parents.
Believe it or not, this also pertains to possible substance abuse. If you married a lifelong pot-smoker, it is reasonable to expect them not to do it in front of the kids, but it doesn’t mean you can punish that person by taking their children away.
I have heard more than one clients say, “I can’t share custody” and go on to drain their investment accounts on legal expenses (with multiple different attorneys, always a bad sign!) to fight having joint custody. But he still gets to see his kids. Accepting this sooner would have saved a lot of heartache (and money).
#6 – You Have to Say No to Your Kids.
Parents feel guilty about the divorce and one side effect is overspending on the kids. If they are spending on the kids rather then themselves, they feel morally superior.
But guess what? You still can’t afford it.
Here are some of the expenses I’ve told clients they need to cut:
- A nanny for teenagers. Yes, it’s convenient that she walks the dog and starts dinner, but you can’t afford to have household staff.
- Daily commute to school by taxi or Uber.
- Annual iPhone upgrade.
The biggest one of all … private school. I’m sorry but too many parents can’t save a dime because they are spending tens of thousands of dollars on private school. If you add up the cost for K-12, it is literally a million dollars in post-tax money in my area. This is a shocking amount no matter how much you make, and for at least some, this financial stress was a contributing factor to the divorce.
#7 – There is Way Less Money to Split Than You Expected.
“He makes a lot of money. Where did it go?” is something I hear from clients all the time.
My professional opinion? You probably spent it.
First, the high salary your soon-to-be ex makes is a lot less after taxes. Add in the high cost of NYC living, restaurants, child care, private school, and now legal expenses, and many don’t have a lot left. Some good savers might, but for plenty, there is a modest savings account, more credit card debt than they expected and a good retirement account and real estate equity if they are lucky.
Could one spouse be hiding money? Maybe. But if they are a W-2 employee it is unlikely. If they are a business owner or foreign national, it’s possible, but really, you probably spent more than you think. (For the record, I am not a forensic accountant and would refer a client elsewhere to investigate if needed).
“Separate Property” may also be a nasty surprise. Assets that preceded the marriage, or gifts and inheritances during the marriage, will likely be classified as separate property and not a part of the marital estate. The most common example I see is where one person’s parents contributed a gift for the down payment on a home. They will see that as a gift to their child and press for a return of it upon sale of the property to their child rather than his/her ex-spouse.
#8 – You Can’t Afford to Keep the House. Heck, You Can’t Afford to Rent.
Where I live, the value of real estate has skyrocketed and easily tripled in the last 20 years. So if you bought a house 20 years ago, it is very likely that most of your net worth is tied up in your home equity, and there aren’t enough “other” assets to trade for that house.
If one person does want to buy out the other, you need to plan to refinance the mortgage in your name. You need a history of income to qualify for a mortgage, and unfortunately the recent increase in interest rates will likely mean the payments will be higher than before. Alimony and child support can be “counted” into this calculation (after some period, usually 6-12 months depending on the lender), but a mortgage that was a “stretch” in the best of times for the couple will almost certainly be a financial burden after divorce.
Even renting can be tough, depending on your area. Many landlords are looking for gross annual income equal to 40 times the monthly rent. So if the rent is $3,000/month, they want you to have $120,000 annual income. Best to be prepared with either a co-signer or extra deposit if you need it.
It’s a grim realization for a 40+ year old woman (or man) to need their parents to co-sign a loan or be guarantor on a lease.
#9 – Your Dad Can’t Save You.
I’ve seen this dynamic quite a few times now. Someone realizes they can’t buy their spouse out, and their dad says, “don’t worry, I’ll save you”. He makes a generous offer of $100,000 to save the day.
Unfortunately, dear old dad has no understanding of the New York City real estate market and sadly everyone soon realizes that it’s nowhere near enough. I’m sorry.
#10 – On the Bright Side … It’s Not Your Problem Anymore.
I remember a client calling and telling me that her ex of 3 years had lost his job and she was a little worried about him. Her financial situation was pretty good, she was receiving child support but not spousal maintenance and her career was on the upswing. We talked about her budget and it wouldn’t be ideal, but she could withstand a delay in child support payments if needed.
My conclusion? He needs to fix this, but it not your problem. I know she felt relieved that she was no longer dependent on him in the same way – it was his problem to deal with, not hers.
Another “bright side” dynamic I have seen relates to child care … quite a few women feel they truly have time “off” from the kids when it is “Dad” time, for the first time ever. It’s not true for everyone, but many divorced couples can truly be great co-parents, perhaps better than they ever could before.
Any of these sound familiar? Working with a Certified Divorce Financial Analyst can help. Schedule a free introductory call or download the eBook for more information.
Disclosure: Sara Stanich is not an attorney or CPA and this does not constitute legal or tax advice. Seek professional advice for your individual situation.