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Recovering from the Financial Distress of Divorce

DISCLAIMER: The following information is not meant to be legal advice. It offers alternatives, tips and resources for those with no means to hire an attorney.

In a typical marital relationship, where one party was the primary breadwinner, there was usually an unspoken living arrangement and agreement. One party would be primarily responsible for working at a job to fulfill the present monetary needs of the family, and also to try and save for retirement and the future educational needs of the children (if any). The other party would be primarily responsible for working at home to fulfill all of the family’s other needs, such as homemaking, being the social coordinator, overseeing and keeping close track of the children’s daily lives, and so forth. For lack of a better word, this spouse is often referred to as the “homemaker” or “out spouse”.

Post-divorce, the homemaker is faced with an entirely new life paradigm with major financial concerns. There are certain keys to thriving under this new paradigm.

Leslie Calhoun is a Chief Investment Officer with Optivest.1 She particularly identifies with people who have had to start from scratch following a divorce or traumatic event.

Ms. Calhoun states that when a person is faced with such a traumatic change in life circumstances, “You need to bring yourself back to happiness, healthiness, and fulfillment with a new targeted lifestyle.”

This involves many key aspects. First is coming to the understanding that you have now made a break from your former life as a homemaker, and have started a new one, with new expectations, new goals, new economic realities, and so forth. A key to happiness and fulfillment is to embrace this new paradigm, and take “baby steps” to adjust accordingly. Ms. Calhoun states, you need to create a plan, “to design for yourself a healthy environment that is not too stressful, and provides an opportunity to grow and learn more about yourself.” You must come to realize the reality that, “you don’t get to be a homemaker anymore.” You must redefine your role in life, your expectations about your life, your goals, and your plans.

A good starting point is to do a financial assessment of where you are, and where you realistically want to be in the future. Thus, you should consider talking to a Wealth Manager about the current support (if any) that you receive, how reliable that source of funds are, and any other assets that you received as a result of your divorce. From here you need to design a plan for moving forward.

This will probably mean living in a significantly down-scaled residence. This may unfortunately mean going from a 2,700 sq. foot single family home, to a town home, mobile home (some of which can be surprisingly nice), or apartment with linoleum floors rather than hardwood and tile. This is because you previously shared a residence with your former spouse, and now each of you is forced to have your own residence. Thus, there is less money to go around. Therefore you need to work on acquiring a residence that is appropriate for your budget rather than attempting to live above your means.

Secondly, you and your wealth manager may determine that you will need to get back into the workforce to supplement your income. This is something that should be discussed with your attorney prior to finalizing your divorce. Under appropriate circumstances, the court may make provisions for you to make it easier for you to spend a year or so to get job training. In alternative, you may need to make plans to live frugally and dip into your savings while you obtain such training. Once you complete your training, you will be able to enter the job market at a higher income, and have much better opportunities for subsequent job and income growth. You should discuss with your Wealth Advisor, what kind of supplemental income you may need to obtain through employment to provide for your living expenses and retirement.

Another key concern is empowerment and independence. You do not want your life to be dependent upon the success of your ex-spouse. You want to make a plan so that when support eventually ceases (which could occur unexpectedly due to an accident or layoff), that you will still be able to support yourself and provide for your retirement.

Michael Levine 2 is a specialist in Long Term Care Insurance and also Life Insurance. He recommends that people dependent upon support consider these insurances to protect their wealth.

The court may order your spouse to provide you with life insurance under certain circumstances. Regardless, even if the court is not willing to do that, you can always budget to purchase your own life insurance in the event your ex-spouse died. Mr. Levine states that Life Insurance and Long Term Care can also be used as negotiating tools in coming up with a support package with your ex-spouse.

Ms. Calhoun and Mr. Levine, also emphasize the importance of protecting your wealth and retirement against depletion from unexpected events. Long Term Care Insurance is one such tool. Mr. Levine says that the national average cost of nursing home care today is $8,000 per month. Mr. Levine notes that a variety of packages are available to fit all kinds of budgets. Long Term Care coverage, even for an older working age individual can often be obtained at $200 a month.

If you are receiving sufficient support and have sufficient assets left over from your divorce, you may be able avoid working by developing a good investment plan and a disciplined budget. In such cases, it is often helpful to have a Wealth Advisor help you not only with setting up a living and investment strategy, but to have quarterly meetings to keep you accountable to your budget, and to readjust your investments and budget according to your actual needs and developments in your life.

1. Leslie Calhoun is a Chief Investment Officer and Partner with Optivest. She focuses on goal oriented investment planning. She states that much of her clientele are widowed and divorced women. With these clients she focuses on rebuilding after traumatic events, and on setting expectations and becoming her client’s accountability partner.
2. Mike Levine specializes in Long Term Care insurance, and other related insurances.

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