It may be tempting to think of the divorce process as similar to a long and difficult labor or dental procedure – “I’ll just be so relieved when it’s over and I can get on with my life.” Unfortunately, and especially for women, the road to financial recovery, independence, and strength may have just begun once the ink is dry. Here are some important tips to enable you to achieve financial security as you enter this new phase of life.
1. Establish a realistic and workable budget and commit to it for at least a year. Your attorney may have had you prepare a budget for settlement purposes, but the chances are that there are two major flaws with this budget. First, it is probably not nearly as detailed as it should be if it was not prepared with the guidance of a financial professional. As a result, you may have overlooked several items which can add up considerably over the months. For example: savings needed for large upcoming repairs on a home such as a new air conditioner or roof, the cost of your re-training or education, major auto repairs, pet care, and a host of child-related expenses such as music lessons, field trips, and birthday parties. Second, the budget you put together for settlement purposes was likely prepared during a period of immense stress and emotional turmoil and perhaps was the first time you ever even attempted to create a budget. As a result, in addition to a lack of detail, there are likely a number of items that are just incorrect. You owe it to yourself to seek professional assistance to ensure that you know what your expenses will be and to help you avoid getting into a financial dilemma down the road. In this arena, knowledge and discipline are not only key – they are KING!
2. Be extremely cautious as you approach the treatment and investment of any financial settlement. If you had little or no interest or experience with managing investment decisions prior to the divorce, you will need to obtain enough information to become an informed consumer. You should make sure that you become knowledgeable of the basics so that you reduce vulnerability to unsuitable investments, inappropriate risk for your circumstances, excessive costs, poor liquidity, and a variety of tax problems. A wonderful book covering many of these basics of the investment world is Why Smart People Do Stupid Things with Money by Bert Whitehead. Upon receiving her post-divorce financial settlement, my sister learned this lesson the hard way when, rather than finding a financial planner and registered investment advisor, she found her way into a stockbroker’s office instead. The friendly face and sudden interest in her plight blinded her to the reality that this person was merely a salesperson paid for selling products for his firm. Although stockbrokers can use any one of about 60 different titles for themselves, the fact is that registered investment advisors and some financial planners are required to be fiduciaries, that is, to act only in their clients’ best financial interest, while brokers have no such duty. Consequently, a stockbroker may fail to properly inform you of alternatives that may be more suitable investments for you – such as the advantages of no-load mutual funds over those 5 ¾% front-end loaded funds that will first enhance the broker’s investment portfolio ahead of yours. The adage “buyer beware” is especially applicable when referring to post-divorce investment management.
3. Be aggressive in addressing current or potential problems with credit. Often during a divorce there is a tendency to seek comfort in purchases that cannot be paid for with current income. In some circumstances, there may even have been purchases made by one spouse through credit as an attempt to ambush the other spouse. And it is entirely possible that credit was used to finance legal expenses. When the divorce is final, for whatever reason or purpose, there is often an unusually high amount of debt that needs to be addressed before it escalates into catastrophe. Make sure that reducing this debt, especially credit card debt, is treated as a top priority item in your budget! Even if you are still able to make monthly payments, you may not be aware of exactly how much the credit is costing you or how long it may take you to pay off the indebtedness – especially if your spouse was successfully juggling the debt prior to the divorce. If it appears that debt is a post-divorce issue for you, don’t hesitate to seek advice from a financial planner who can offer short-term guidance and planning services for an hourly fee. You should be especially cautious of debt consolidation offers – they can easily leave you in worse shape than you were in prior to the “consolidation.”
