At some point, “I do” turned into “I don’t”. Now your once best friend and confidant is sitting across a long table, in a cold, foreign conference room, on the opposing team. You are there to determine how to divvy up shared assets you worked to accumulate and precious time with the kids… Your mind wonders:
Do I have good representation? Should I settle?
How will I pay for my kids’ college and my retirement?
Can I trust what my soon-to-be “ex” says? What if he does not hold up his part of we agree upon? Could he be hiding money?
Should I fight to keep the house? Can I afford it?
Do I have a clear understanding of my current financial situation? How will my taxes be impacted? Will I run out of money?
Uncertainty is one of the most challenging aspects of navigating divorce, making good, sound advice indispensable when trying to answer these questions and more.
AICPA Podcast Transcript featuring Paula McMillan, CFP®, CPA/PFS, CGMA
(continued from above):
Both men and women suffer in the divorce process. In addition to the wrenching emotional turmoil, there is nothing like divorce to put pressure on a financial plan – creating stress from all angles. Divorce almost always takes longer and costs more than people think – emotionally and financially. You are splitting assets, debts and even when you will be able to be with the children.
Divorcing women can have some unique concerns, as a gender segment. The combination of the tendency of women to outlive men combined with the fact that women are often compensated less than men in comparable positions, can often mean a longer life, and specifically retirement, to support with less resources. Furthermore, women who are less experienced with managing finances can be less inclined to speak up for what might otherwise be rightfully theirs.
Women tend to be people pleasers. I have seen women feel convicted to make significant financial concessions to avoid looking greedy, make it easy on the kids or feel an irrational concern for a soon-to-be-ex-spouse. The urge to end the anxiety that comes with divorce can lead to her make wrong decisions just to move past it.
Her advisor is in a position to support her through these challenges and more. It is not necessary to have been through a divorce to be an indispensable advisor in a divorce. In fact, it is critical for an advisor who has been through their own divorce to try to separate his or her personal experience from the one at hand. A divorce is a very personal, individual experience, best viewed through clear eyes without colored lenses.
In supporting, advising and encouraging her, remind her of some key tenets along the way that will serve her well:
Take ownership of your outcome. Engage in the process without solely relying on a soon-to-be-ex-husband or attorney to represent your best interest. This is the first step of the rest of your life – your opportunity to take the reins. You can emerge from the experience with added confidence and independence. Unduly rushing the process to get it over with quickly can be very costly – both financially and emotionally. Be careful. Long after the poignant pain of the divorce process has subsided, your course, going forward, will be heavily influenced based on the outcome negotiated by you and on behalf of you during this finite period of time.
Prioritize what matters to you from the beginning, with a clear understanding of the overall process. As mentioned, women tend to be people pleasers. We often do not ask for what we want. We often find ourselves hoping someone will see our selflessness and give it to us. Furthermore, the complexity and swirling demands that surround the divorce process can become confusing. Keep your eye on the ball, by knowing what you would like, what you want and what you truly cannot live without.
Know your options to be able to identify the right divorce process for you. While many complex, high-profile, high-wealth divorces require litigation, litigation can be very expensive with unpredictable outcomes left up to a judge deciding your future. The trend today is to first try to utilize a professional mediator or engage in a collaborative divorce, if possible. In a mediation, negotiations take place between the couple and a neutral mediator, with each individual in the couple encouraged to have any proposed agreement reviewed by an independent family-law attorney working for him or her. This need for counsel to review and weigh-in on outcomes led to an increased interest in collaborative divorces. In collaborative divorces, each party has their own legal representation throughout the process, as opposed to only being engaged in select parts of it.
Understand the risks going forward to be able to make plans to mitigate them. Women who have engaged me after their divorce has settled have expressed regret over not fully appreciating the greatest risks to post-divorce security. They have expressed that if they would have better understood, they may have been less focused on a fear of appearing greedy, keeping harmony at all costs with a divorcing spouse, making sometimes irrational decisions they mistakenly felt at the time were of paramount importance to children’s stability, etc. Those often overlooked risks for divorced women include longevity risk, sequence of return risk and others.
In the case of longevity risk, living longer means more years to support yourself. Helping children through college and other needs, planning for retirement, planning for long-term care and more must be considered. A financial plan demonstrating the cost of keeping the house over maximizing investments saved for retirement, potential costs of education and/or re-educating your kids and/or yourself and the numerous other decisions you are contemplating during the divorce process can be invaluable. It is impossible to look at the impact of all of this on the back of an envelope.
A financial plan can also be helpful in illustrating sequence of return risk. Sequence of return risk is the risk associated with retiring in a down market when you need to withdraw from portfolio assets to support your lifestyle. It often results in eroding your principal so significantly out of gate that you are never able to recover.
Have realistic expectations. It quickly becomes apparent that the goal of an “equitable” split does not mean 50/50, making it important to take inventory of what will ultimately be truly important to retain in the end. So many considerations will come into play to define “equitable”, such as the period over which you were married, ages, health, time spent staying home with children and more.
You do not have to have all of the answers. There are a host of people who care about you and have been through this before – from friends and family to professionals. This could include a divorce attorney and/or estate planning attorney for legal concerns. It could include a CPA or CPA/Personal Financial Specialist, a Certified Financial Planner or a Certified Divorce Financial Analyst for planning concerns. Depending on the complexity, it could include a host of specialists from Certified Valuation Analysts to private investigators to psychologists and more. Your advisor is an excellent source for people with specific expertise who may be needed along the way.
There is nothing like divorce to test one’s resilience. It literally impact everything in her life. She will have to balance changes in her daily schedule, understand a new set of finances, become more knowledgeable about the legal system than most would care to know and support children and other dependents through the process while maintaining her sanity through conflicting emotions. This complex process provides many opportunities for you, her advisor, to offer comfort, support, knowledge and encouragement. An effective advisor can help her avoid making rash decisions she will later regret and help her see that there is a bright light at the end of the tunnel. This experience can make your relationship stronger – and more importantly make her stronger, as a person.
Bio: Paula McMillan, CFP®, CPA/PFS, CGMA
Paula McMillan, CFP®, CPA/PFS, CGMA helps people answer the question “Do I Have Enough?” to achieve and maintain financial independence. She does this through creating detailed financial plans for people and managing their investments for growth. She is a Senior Financial Advisor with Stearns Financial Group.
Paula serves on the AICPA’s Personal Financial Specialist (PFS) Credential and Advanced Personal Financial Planning Conference Committees, the Society for Financial Service Professionals’ Foundation Board and founded and chairs the NCACPA Triad Women’s Initiatives Group and Plenteous Financial Forum. Paula is also an active member of the Greensboro Estate Planning Council and NAPFA.
Paula has been published and quoted in national and local publications, including AICPA’s The TaxAdviser, Kiplinger’s and The Business Journal. She created two national AICPA podcast series on retirement planning and women and wealth. She is a TEDx presenter on the topic of Retirement: Longevity and Security. Paula regularly delivers presentations to national, regional and local audiences on financial life planning related topics.