The reality of every divorce is that there is always less money after divorce and ending a marriage means facing that reality.
For some people it means having to manage the household finances for the first time either in a long time or sometimes, for the first time ever. It means there is no more shopping and buying things with an open credit card, with no spending limits and having a spouse who takes care of the bills.
For some people, it means reassessing lifestyle choices and adjusting to the new reality.
For others, it can mean seeing their carefully executed financial plans change dramatically.
None of these are an easy adjustment but adjust we must because if we don’t, we’re going to face bigger financial difficulties.
So how do you do this? What are the secrets? Joining me for this episode of Conversations About Divorce is financial advisor, Jason Silverberg who’s the author of The Financial Planning Puzzle: Fitting Your Pieces Together To Create Financial Freedom. Listen in below or keep reading …
What Is A Financial Plan?
It’s no wonder that most of us find financial planning confusing. Silverberg admits that it can be overwhelming and there is no exact starting point. It’s all about taking ownership of your financial future and to do that you have to understand your current situation. Then, “it’s about creating a vision of what financial success for yourself looks like,” says Silverberg.
I found that one sentence encouraging because this isn’t about achieving someone else’s definition of success or setting yourself up to be measured against some arbitrary yardstick. This is about figuring our what is important to you and that’s why, everyone needs a financial plan after divorce.
Know Your Current Situation
Before you can start creating a plan, you have to know where you are today. That means pulling together the basic information about your bank accounts, credit cards, mortgage, car loans, life insurance, and so on. The legal process of getting divorced often requires all of this so if you’re either going to have to do this anyway, or you’ve already got a good start on it.
Silverberg recommends keeping it simple and recording the information on a simple spreadsheet – start with just the account type, the institution and the account balance. The important thing is to get all the information into one place. You are essentially creating a personal balance sheet.
While gathering the information, make sure that you can log on to the account online and access statements. When you’re ready for the next step, you can gather more information about the account. For a credit card for example, you might note down the interest rate. For investments, you might note down where the holdings are. For any account with a credit balance, you might note down the beneficiary designation.
This first step even applies if you already had a financial plan that you’ve been following. Your divorce is going to mean dividing your assets so figuring out what your post-divorce position is likely to be is just as relevant.
This Is A Process
You might wish you could tackle this in a single evening or weekend but the reality is you can’t and understanding this will help you be successful. This is more about changing your relationship to money than following some expense or investment rules you’ve adopted.
“There’s definitely a mindset shift when it comes to finances and moving it forward. A lot of times we dwell on the negativity of major changes like divorce, and it’s hard to get out from the negativity and overwhelm,” says Silverberg.
Approaching this as a learning process means practicing self-compassion and accepting that you will make mistakes as you move forward but those mistakes don’t mean you’ve failed. You simply have to recommit the next day.
Prioritize Your Goals
The overwhelm with financial planning comes because we see all these goals, like contributing to your retirement, saving for your kid’s college, or paying off your credit debt, as good goals, things we want to do but since money is limited, most of the time, we can’t do them all at once. That means you have to prioritize what is most important for you right now.
That might mean holding off starting a college savings fund until you’ve got a really good handle on your current situation.
Silverberg’s advice is to “avoid the knee-jerk reaction to jump head first into some of the problems or challenges you might be facing. Taking a step back will give you more understanding and confidence that you will be moving in the right direction.”
Know Your Personal Why
People often feel that they should be paying off this debt or should be saving for this, but Silverberg says what comes first is what he calls knowing your personal why.
If your children are your personal why, then you should be building a strategy that will put you in a good position to help your children and then actually being able to help your children. If you’re building a business, then that may be your personal why.
Silverberg says everyone’s personal why is different. Once you have your why, then you can define what financial success means to you.
“Financial success could be a monetary number, could be a lifestyle, could be some wishes,” says Silverberg. He recommends his clients actually write these down by hand on paper because the act of doing this seems to make it more meaningful, more memorable. These could be short term goals or long term goals or a mixture of the two.
Get Into Your Financial Flow
Silverberg has coined the phrase “financial flow.”
“You can create your financial vision, you can have your personal why and you can align that with your habits and actions. If all three of those come into alignment, you’re creating a state of financial flow for yourself.”
Getting to a state of financial flow takes being present and mindful in your actions and it becomes very empowering, as it helps guide you towards your definition of financial success. It also helps to keep you motivated and moving forward, especially at times when you’ve made choices that move you away from your vision.
Seek Professional Help
Most of us are not good at this on our own. We do need help from professionals and that applies no matter how much or how little money you have. And when it comes to competing goals or different opportunities, it helps to brainstorm with an independent third party who is familiar with your situation.
That professional help can take a number of different forms. Some financial advisers do focus on clients with a net worth above a stated amount while others, like Silverberg will tailor their services to client needs.
Getting professional help however isn’t limited to working one-on-one with an adviser. There are many books and some advisers, like Silverberg, have online, self-guided courses available. Meetup may also be a good source for learning from and with others in your local area.
If you do decide you’d prefer to work with an adviser, then remember, this is not a one-time transaction. This works best when it is an on-going relationship so look for someone who is patient and willing to explain concepts and rationale with you, someone who is willing to walk you through any numbers, step-by-step.
Will Divorce Mean Delaying Retirement?
A big question for people who are in their late forties or fifties when they get divorced is if they will be able to afford to retire when they had planned to. Silverberg says there isn’t a one-size fits all answer to this. For sure, there may be less money following the end of the marriage, but simply assuming you can work longer to make up the shortfall may not be a reality when you take into account your career and your health.
The answer Silverberg says goes back to first redefining your personal why. How has divorce changed this and does divorce change your definition of financial success? Then there may be adjustments you can make to your current lifestyle or your projected retirement lifestyle that could help compensate for the division of assets. A financial adviser could also help you assess if you’d be comfortable with more risk in your current investments. The key is to be flexible and to keep an open-mind.
Should You Stay Married?
Silverberg and I have both worked with clients who are desperately unhappy in their marriage but who are unable to end the marriage because of the likely impact on their financial resources. They get stuck trying to decide if divorce is the answer. Silverberg says this reflects a ‘scarcity mentality.’
Silverberg’s philosophy is “why live your life in a state of unhappiness? Certainly, it may not be financially better but you only have one life to live.”
Do what your heart tells you to do and the money can be figured out.
To sign up for Jason’s 5 Steps to Creating Financial Freedom Mini-course, visit: course.thefinancialplanningpuzzle.com.
Jason Silverberg is a registered representative and investment advisor representative of Securian Financial Services, Inc. Member FINRA/SPIC. Financial Advantage Associates is independently owned and operated. Jason’s book, The Financial Planning Puzzle” Fitting Your Financial Pieces Together to Create Financial Freedom is available for purchase at TheFinancialPlanningPuzzle.com.