by Karen Telleen-Lawton, Noozhawk Columnist (read the original in Noozhawk by clicking here)
Divorce is like a death in the family. Long-term dreams evaporate and financial stability is threatened. Even if it’s best for your future, it can be emotionally crippling short-term. What financial steps should you take if wedding vows are slipping towards a divorce decree?
You’ve likely been seeking advice from friends or coworkers for ages. When you begin contemplating divorce, however, it’s time for professionals. A marriage counselor, financial advisor and divorce attorney can smooth your path in the long term.
A marriage counselor helps you sort out whether your differences are irreconcilable. If your spouse won’t go with you, go alone. A divorce attorney will help you understand the process, as well as the implications of what to concede or demand.
A financial advisor projects how a split will affect your retirement income. She will help determine the relative value of assets in a split, such as tax-deferred retirement accounts. You want to be gracious when dealing with your soon-to-be-ex without acquiescing decision-making to a savvier partner.
Especially if you’ve never completed one, assemble a pro forma budget. What expenses will you pay as a single, and what income can you expect? If this exercise hints at retirement income that is less that you expected, consider your options.
Increasing projected retirement income requires earning more, retiring later, spending less, or improving the return on your investments. Sometimes all of the above.
Earning more requires brainstorming how you can put your life experiences to work for higher income. Retiring later implies that you stay healthy for the energy to work more years.
Spending less is arguably the most controllable way to increase your future retirement income. Reevaluate your needs versus your wants.
Cherish the things that aren’t expensive, like spending time with friends and family or taking a walk in the neighborhood. Take an adult education class to meet new friends and develop new marketable skills. If you’re already separated, consider a roommate or co-living arrangement.
Increasing the return on your investments generally required increasing risk. Nevertheless, if you have a lot in cash, you can reallocate some into certificates of deposit and high-rated bonds (not bond funds).
Also, check the management fees on your investments. If the rates or fees are high, consider switching money managers.
You may consider switching to riskier investments with a higher expected return, but seniors should be wary of this option as they have fewer years to recover from losses and recessions.
These budgeting and retirement income exercises are likely to be very sobering. It may be the first time you’ve considered how you will pay health insurance, how to acquire your fair share of retirement accounts, or whether the new tax law changes will affect any expected alimony.
If you are unsure about the advisability of divorce, consider a trial separation. Living apart may even improve your relationship enough to attempt a trial reconciliation.
Look to friends and family for support while you add new friends and activities to replace things you used to do as a couple. Use professionals to make your best deal now, and then live with the consequences. Count emotional happiness as part of equation, and rejoice in taking charge of your life.
Five tips when contemplating divorce:
Don’t go it alone.
Develop a pro forma single-person budget.
Consider ways to increase your (future) retirement income.
Consider separation as a short- or even long-term solution.
Appreciate the opportunity to take control of your life.
Karen Telleen-Lawton, Noozhawk Columnist
Karen Telleen-Lawton is an eco-writer, sharing information and insights about economics and ecology, finances and the environment. Having recently retired from financial planning and advising, she spends more time exploring the outdoors — and reading and writing about it. The opinions expressed are her own.