When dealing with a divorce, how do you get to a place where you can make money decisions on your own?
Divorce doesn’t have one face. It’s complicated and messy and everyone has their own experience. But it’s the first step to a new you.
My own divorce happened after I immigrated to America from Bulgaria more than 20 years ago, when I was much younger and didn’t have children. It was really all about starting over. My ex-husband went back to Bulgaria, and I stayed in America to make it on my own.
The divorce led me to become a wealth planner, because I knew that educating myself would help me through it. So, I took financial planning classes and then started to deal with all my own money issues, like getting a mortgage and buying life insurance.
Here are 3 steps for getting started on your own that I learned from my own experience.
1. Run the numbers
A lot of people want to know what it would look like for their finances if they got divorced, because they fear it will be a disaster. Sometimes a couple will do this together, and sometimes they ask separately. It’s always a little bit awkward, because each person has to decide how they are going to handle things after the divorce. Will the couple continue to make decisions together? At what point does that become unwieldy and they each must choose their own financial paths?
This is an important first step, because there is often one spouse who doesn’t know what assets they have. In my experience, it’s still mostly the husband who handles the investments and major financial decisions, though times are starting to change. It helps to go through what financial planners call a “net worth review,” where the couple lists all the assets and liabilities, and outlines the ownership and beneficiaries of all the accounts.
The best way to do this is straightforward—just numbers. Sticking to the math helped me overcome the anxiety of what would happen in the future—where will I live, where will he live?—and get to planning. You can also start dealing with any nasty surprises, like somebody spending too much money or hiding accounts, which might involve the intervention of a court if you can’t work it out on your own. I have a friend going through this now and it’s like a wake-up call for her to find out all this information.
2. Compare the what-ifs
Once you know your current position, you can run different scenarios to see what works best for you. You might want the help of a financial professional to run sophisticated analyses. One couple came to me together recently to see how it would work if they stayed married versus divorced. We did a cash flow analysis and ran estate plan scenarios to determine the implications of each approach and see what kind of budget each would need going forward. Some people want to explore whether they should sell the family house or if one of them should keep it. Others want to figure out how it will look if they split up retirement plans, or how they will pay for college.
This used to be a complicated, hand-crafted math exercise, because it’s very tricky to model life events like divorce. There was never any button in financial planning software programs that did this sort of thing automatically. You had to manually create plans with specific assumptions and then compare the outcomes. Now divorcing couples can start the process with marital split online calculators, like the one Fidelity offers.
For me, getting organized with the numbers was a way to deal with the divorce emotions. It helps if you have somebody to work with you and keep you on task, like a financial professional or a trusted friend. However, sometimes just having a calculator available to use on your own may give the needed push to begin planning your future.
3. Get educated
Most people going through a divorce want to make sure they have enough money to carry on, but they also have to be prepared to take ownership in managing their money going forward and make all the decisions that will come up along the way.
For many, especially women, that means taking the reins of your own financial literacy growth. You can get help with this through things like educational webinars, lunch & learn meetings, and reading on your own. It’s a process.
I had one client who divorced and for years still ran every financial decision past her ex-husband. I was still working with both, separately, and the wife built up her confidence slowly. The ex-husband ended up getting remarried, and then divorced again. I also worked with the second ex-wife, who also went through her own learning process. Both of those women are working on making their own decisions and learning what works for them individually.
This is not at all about developing the financial literacy to make the right stock picks. It’s about defining your goals and objectives. To run what-ifs and figure out a plan, you must start with a destination you’re trying to reach. You need to think about your wishes, what’s important to you, and who is important to you, and then work on how to accomplish what you want. Divorce is just the beginning of that process, not the end.
Sirma Tzoutzova is a vice president, wealth management advisor for Fidelity.
She’s now remarried and raising 2 children in Palo Alto, California.