-- Going through a divorce can be extremely difficult. Because the outcome will have a lasting financial impact, it’s important to address critical issues early on.
Women undergoing a divorce can be highly vulnerable if they haven’t been involved with the family finances because of a lack of financial empowerment. For these women, financial decisions can be particularly difficult.
Every financial decision they make before and during property-settlement negotiations should be evaluated with this question: What will be the impact on your long-term financial security?
If you’re a woman facing divorce, there are some things that you should attend to right away:
Your legal goal should be to get things settled without litigation, because all too often, the only financial winners in litigation are the attorneys. Moreover, you want to avoid the stress and lasting emotional damage that litigation can bring, so you want an attorney who can help you achieve a fair and balanced settlement rather than one who may tilt things toward litigation to rack up more billable hours. Mediation is a great alternative to litigation because it costs far less, is less adversarial and involves professionals whose goal is to help you and your spouse resolve differences rather than fanning the flames of conflict.
Too often, women getting divorced confuse alimony with financial security. But alimony just sustains dependence on your spouse. Moreover, alimony has limits, and you may not collect it all. Real financial security comes from self-reliance.
When you get into negotiations over marital property, remember that what may seem like a good property settlement now might not look so good down the road. To look after these long-term interests, be sure to evaluate options using these criteria:
Your retirement. Retirement planning is always a major consideration. If you’re 25, of course, it won’t be as critical as it will be if you’re 50. You want to come out of the divorce with assets that can fit into, or be sold to produce cash for, an investment portfolio to build your retirement nest egg. If you’re spending too much on upkeep and taxes on a huge house, that cuts into this ultimate nest egg. If in your settlement you get money in tax-deferred accounts like an IRA or a 401(k), that may be a good thing for your retirement, provided that you don’t need the money until after you’re 59½ (when penalties for early withdrawal no longer apply) and preferably after you’re completely retired and in a lower tax bracket than when you were working. However, under some circumstances, you can take money out of these accounts early without penalty. As a rule, though, you should avoid taking money out of retirement accounts early. As most states consider retirement benefits to be marital assets subject to division, you may want to get your spouse’s 401(k) assets or pension assets on the table for division. To get a piece of these assets (but not IRA assets), you need a QDRO (qualified domestic relations order), because a court order approving the divorce property settlement isn’t enough. This is a highly technical area, so you might need to bring in a specialist.
Regarding Social Security, if you are married for at least 10 years, you will want to claim your spouse’s benefits (if they’re higher than yours) at no cost to your spouse.
Throughout the process of negotiating your property settlement — and, you should hope, not litigating it — keep in mind that the right thing to do is to go for what’s fair. You were married to this person and, especially if you have children, you shouldn’t want to punish them or rip them off. Of course, fair means fair to yourself as well as your ex. By keeping these points in mind, you stand a better chance of getting a fair settlement whose lasting impact will be beneficial for the long haul.
Any opinions expressed here are solely those of the author.
Laura Mattia is a partner with Baron Financial Group, and a fee-only financial advisor. She's a Certified Financial Planner professional (CFP®), a Chartered Retirement Plan Specialist (CRPS®) and a Certified Divorce Financial Analyst (CDFA™) and holds an M.B.A. in accounting/finance. Her Internet radio show is Financially Empowering Women™ with Laura Mattia. A former professor at the Rutgers University Business School, Mattia is completing a Ph.D. in financial planning from Texas Tech University; her dissertation is on how to help women plan for retirement.