Tackling the Tough Stuff: Financial and Emotional Planning at Divorce

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension & David Sexton, Jr., OneOp Family Development

Death, disability, and divorce are three common life events that can drastically change the personal finances of those involved. Often, as a result, an individual’s or family’s standard of living is reduced. Of these three life-changing events, divorce is the only one that cannot be provided for in advance with some type of insurance.

Divorce is financially unsettling because there are so many important decisions to be made such as dividing assets and figuring out how to make ends meet on a reduced income. When a couple divorces, economies of scale are reduced because maintaining two separate households is always more expensive than living together.

A further drain on the finances of a divorcing couple is legal fees. Initial retainers for each spouse can run from $2,500 to $5,000, with additional charges (sometimes well into five figures) if a case is complex or takes years to settle. Many lawyers charge $200 to $500 an hour and, as the saying goes, “time is money.” There may also be other expenses such as increased child care costs or transportation for children’s visitation between parents.

Divorce affects every aspect of family finances, including cash flow, income taxes, retirement savings, insurance, and estate planning. Decisions made at a time of emotional turmoil can have an economic impact for decades. Below are eight financial recommendations to share with service members who are divorcing:           

• Learn the Local Laws- Determine if the divorce will be filed in a community property state or the majority of states with an equitable distribution approach where property acquired during a marriage in either or both spouse’s name is considered a marital asset subject to division in a property settlement agreement. Three exceptions are assets owned prior to marriage, gifts, and inheritances, unless commingled in joint accounts.
• Prepare a Net Worth Statement– Tally up assets minus debts because an attorney will request a complete accounting of a couple’s separate and joint property. A form to calculate net worth can be downloaded from the “Resources” section of the Rutgers Cooperative Extension web site.
• Do Some Math– Consider carefully whether either spouse can afford to keep the family home following divorce, especially if it took two paychecks to qualify for the mortgage. Compare the costs of staying in the house (e.g., mortgage, insurance, property tax, utilities, yard work, and maintenance) with the cost of renting and one-time moving costs (e.g., moving van, security deposits, and utility hookups).
• Protect a Good Credit History- Close joint credit accounts with an ex-spouse before a divorce is final. Also request duplicate statements from creditors if you have doubts that an ex-spouse will make payments on jointly-held debts as per a divorce decree. Another option is third-party notification if a payment is late.
• Prepare to Live on Less-Develop a realistic post-divorce spending plan (a.k.a., budget) that may involve “downsizing” from your previous lifestyle as part of a married couple. Do not attempt to try to live beyond your means using payday loans or credit cards. Eventually, you will get in over your head.
• Review Insurance Coverage– Make sure that the spouse(s) paying alimony and/or child support have adequate life and disability insurance so that payments will continue no matter what.
• Know the Tax Laws Regarding Divorce– Remember that child support is neither deductible by the payor nor taxable income to the recipient. Alimony write-offs are going away in 2019. Beware of the tax implications of property transfers: appreciated assets such as stocks and real estate are worth less than face value because they contain built in capital gains and may require sales expenses; e.g., broker commissions.
• Consider Retirement Plan Distributions- Don’t discount the value of a retirement savings plan. After a house, it is often a couple’s second largest asset. Sharing benefits earned by a worker during a marriage is typically accomplished with a Qualified Domestic Relations Order (QDRO), which is a court-ordered document that tells the retirement plan administrator how to divide benefits between divorcing spouses.

As you tackle your finances, remember to also take care of yourself. In times of great stress, such as during the course of a divorce, it can be difficult to remember to look after your own well-being. In addition to the physical lifestyle changes you’ll be going through, you may also be enduring one of the most emotionally challenging events of your life. Divorce has been linked to a plethora of negative outcomes, such as decreased physical health and manifestation of psychological conditions, such as depression (Frisby, Booth-Butterfield, Dillow, Martin, & Weber, 2012). As such, it is important to plan for how to cope with the emotional effects. You might be thinking, “PLAN for emotions? How am I supposed to plan for how I might feel about something in the future?” Well, the answer is simple: you don’t.

Research has shown that we are notoriously bad at predicting how we might react to an event in the future, and these predictions are especially inaccurate regarding events involving intense emotion (Hong, Lishner, Vogels, & Ebert, 2016). So, we aren’t asking you to predict and plan for how you might feel IF you find yourself going through a divorce. That would be too much to ask of anyone. However, if you do find yourself in that situation, it would be immensely helpful to understand how to handle your emotions as they come. Here are some recommendations for service members on how to cope with divorce on an emotional level:

• Utilize Mindfulness Techniques– Mindfulness involves focusing one’s attention on the present moment, without concern for past or future, while recognizing and accepting what one is feeling without judgement (Hong, Lishner, Vogels, & Ebert, 2016). In other words, accepting what you are feeling, without thinking of those feelings as good or bad. The practice has a host of benefits, including decreasing negative emotion, stress, and emotional reactivity.
• Develop and Strengthen Your Emotional Intelligence (EI) – Emotional intelligence (EI) refers to one’s ability to recognize, understand, and express his or her emotions (“RULER Overview”, n.d.). This allows individuals to pinpoint how they are feeling when they feel overwhelmed and unable process their feelings. This recognition allows them the ability to process and express their emotions in a healthy way. Here is an app useful in improving EI.
• Do Not Suppress Your Emotions– Suppressing your emotions is unhealthy, and does not solve any problems in the long run. It is important to process those feelings in order to overcome them and suppression will merely slow down the process (Goldsmith, 2018).
• Appreciate the Positive When You can- Research has shown that positive emotions are invaluable during times of great stress. In fact, individuals capable of emotional flexibility, or reacting to positive and negative events appropriately, demonstrate greater resilience during times of adversity (Waugh, 2017).
• Don’t Go at it Alone- Don’t be afraid to reach out to others. Whether you decide to call on a friend or family member or a counselor or therapist, know that it’s okay (and recommended) to talk about your experience with others. “When I have been listened to and when I have been heard, I am able to re-perceive my world in a new way and to go on. It is astonishing how elements that seem insoluble become soluble when someone listens, how confusions that seem irremediable turn into relatively clear flowing streams when one is heard. I have deeply appreciated the times that I have experienced this sensitive, empathic, concentrated listening.” Carl Rogers
• Be Understanding… Of Yourself- Divorce is a huge change, even if it’s a change for the better. Allow yourself the time and space to experience the changes that are occurring as a result of the divorce and accept yourself for the person who is experiencing them.