Divorce is never easy. We seem to wear 20/20 vision glasses as we look to the past once a relationship deteriorates. While marriage and business are different, we may consider a strategy in marriage that businesses begin with … by starting with an end in mind. Businesses consider their exit strategy before entering into the deal. Perhaps the strategy is applicable to those entering personal relationships that turn very financial during divorce. Susan Bradley from Financial Transitionist® Institute says that when life changes, money changes and we can all relate to that statement.
What have people discovered during divorce that makes people wish they knew in advance?
1. That choosing to stay at home and focus on the family for the “family team” means you relinquish benefits that accrue during working years such as 401k contributions, 401k matching contributions, pension contributions, Social Security (regardless of your belief of stability of this program)
2. That all assets in community property states are divided equally.
3. That standard of living after divorce may not feel equal.
First, there are many emotional and mental reasons why couples and/or parents choose for one spouse/parent to be the home bound spouse to maintain an agreed to quality of life or to “raise” the children (no inference is made that the working parent is not a participating parent). The key is to discuss the financial implications to both parties. If you are the primary family coordinator, what expectations do you have of the spouse and/or co-parent? And vice versa. We often hear people complain of “poor performance” of one of the spouses for a myriad of reasons. Whether these issues led to the divorce or is just hindsight commentary these feelings influence the “fairness” meter in negotiating divorce. Knowing in advance, and documenting the agreement, could help smooth out some of the financial issues should the relationship come to an early conclusion.
Second, community property during the marriage does not equate to entitlement of future earnings or future earned benefits. And some company benefits are tied to performance (options, stock awards, etc.) which can have a separate division calculation applied to the asset [In Re Marriage of Hug (1984) and Marriage of Nelson (1986)]. It is important, if you are in a high earning/high asset relationship that you are familiar with your financial position – married or single – regardless of which of you is the high-income earning spouse. Having healthy open discussions about the financial impacts of emotional decisions creates an environment of dissolution with greater understanding. Discuss expectations and consider documenting them either with a pre-nuptial agreement or a post- nuptial agreement. Remember to discuss award dates versus vesting dates to ensure complete understanding of your financial circumstances during a divorce. Your family law attorney can help you draft appropriate documents.
Third, I have encountered misconceptions regarding spousal maintenance in thinking that one party is responsible for the future of the other after divorce by equalizing future income. Future earnings are typically not a part of divorce. There are three parts of divorce: Asset/liability division, spousal maintenance, and child support. Many believe spousal maintenance is a lifelong entitlement and are very surprised when they discover it is more of a bridge to your next chapter. Spousal maintenance is a factor of reasonable need and the ability of the other party to assist in the transition.
I encourage couples to co-plan while they co-exist to be better prepared for life’s unexpected turns.
As a financial professional I enjoy helping those entering a marriage understand what a sound financial plan can accomplish. As couples consider their future marital bliss and financial success, a complete financial understanding increases mutual understanding of the potential life events that can disrupt the happiest of lives. Maybe a valuable gift to the newly engaged is a financial plan through a professional advisor! Ready to give the gift?
Call to schedule your gift at 602.923.9800. Together we can help get your loved ones off to a blissful start.
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