When 'I do' Becomes 'I Don't'
Words by Georgie Loxton, CFA, Wealth Advisor with International Financial Planning Ltd.
The decision to separate and ultimately divorce is surely one of the hardest of one’s life. With it comes huge upheaval and emotional turmoil. It also involves the undoing of a financial relationship.
With marriage comes the union of two people emotionally, physically and financially. With divorce, the emotional and physical separation is often long done, and what is left is the financial separation. Sadly, divorce becomes, whether we want it to or not, mostly (and often exclusively) about money.
And it doesn’t come cheap. Divorce can be financially crippling for both sides. The direct costs are the legal fees, which in an acrimonious case can run into hundreds of thousands of dollars. But there are many hidden costs. Two households cost a lot more to run than one household. Setting up a whole new life can be expensive.
If a break-up happens early in marriage, both parties can get themselves back on their feet relatively quickly. But longevity has resulted in an explosion in people divorcing later in life, so called ‘gray divorce’. Divorce rates for those over 50 has roughly doubled over the past 25 years. Whilst divorces amongst this cohort mostly don’t involve costly child custody battles, a split close to, or during, retirement can have a major impact on even the best retirement plan. If investment and retirement accounts are split in two then the retirement income may be halved (unless the retirement assets are very large and income needs are particularly low). With that comes the need for a major adjustment in the expected standard of living.
If the marriage has been traditional in that the husband has been the bread-winner whilst the wife looked after the children, sadly, it is likely to be the wife who finds herself financially compromised. The husband may find his retirement is put back a few years, but the wife may have been out of the work-force for twenty years. Getting back in at that point is tough. Statistics show the disproportionate impact of gray divorce on women. The poverty rate for single men divorced after age 50 is 11.4 percent, while almost 27 percent of women divorced after 50 are poor.
What can both sides do to protect themselves? Pre-nups have a bad name, but there can be a place for them in modern life. A pre-nup doesn’t suggest you think the marriage is going to end, it just protects you should that occur. Think of it as a form of insurance. You don’t have house insurance because you think your house is going to burn down, you have it on the off-chance it does. A pre-nup can strengthen a marriage because it actually forces a level of financial intimacy before you walk down the aisle that is so often missing when people get married (and often turns out to be the actual reason for the divorce – 57 percent of marriages are reported to break down primarily due to money issues).
If you do divorce, make sure you have everything in the divorce decree and don’t rely on promises. The other party may indeed intend to cover the cost of the kids’ college education but future marriages can quickly scupper that.
Consider seeking the advice of a financial advisor during the divorce process itself. You need someone to help you remove the emotions and bring clarity to decisions such as ‘do I want to keep the family home, or would I be better taking the investment/retirement account?’ Often it’s the latter despite the emotional ties to the former.
If you remarry, make sure you find out about your new partner's previous marriage. When you marry someone who has been divorced, you also marry their divorce decree. Financial intimacy is so important and you want to understand your future spouse’s financial obligations to his former family.
If you have left the work-force to care for your children (and women, I am mostly talking to you), stay engaged in your family finances. Don’t rely on your husband ‘having it covered’. Understand what is coming in, what is going out, and what is being set aside for the future. Try to maintain your own independence in the form of at least six months’ of running expenses in a bank account, in your own name. Too many (women) find themselves cut off from the income stream during a bitter divorce and are forced to settle simply because they cannot afford to keep fighting.
Finally, prevention is always better than cure. The best advice I can give? Stay married. Given the financial cost of divorce, one of the best investments of your life might actually be the health of your marriage. Don’t leave it to chance because at the end of the day, our happiness relies on the strength of our relationships and not on our bank balance.
To learn more, contact: Georgie Loxton, Founder of Women, Wisdom, Wealth at:
Email: or Facebook: Women, Wisdom, Wealth
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