JUST GOT... DIVORCED
Most adults are trying to pay down their debt, put something away for retirement, maybe save for a child’s education, so it’s going to be hard to prepare for a divorce by building a just-incase cushion of hundreds of thousands of dollars. “In the majority of situations where I’ve seen a divorce, it has had disastrous impact and it’s very hard to plan for that,” La Gamba says.
The most obvious impact is that potentially two incomes are now one and the costs of living on your own are often not that different than living together, especially if children are still at home. “This is a big derailer of financial security,” Rechtshaffen says. “It usually drains significant net worth versus the plan based on an ongoing marriage.” Aside from buying or renting a new home or funding the existing one by yourself, utilities, child care and other costs will be about the same. And though spending on food and other consumables will likely decrease in the new setup, it won’t be enough to offset the other costs — particularly if alimony or palimony has to be paid.
Again, it’s not something couples want to talk about except for those with pre-nuptial contracts or co-habitation agreements in place since they have already admitted the possibility of breaking up. Even then, however, chances are that one person managed the finances more carefully than the other. “I’ve acquired clients because they are now separated and one person handled all the finances and they had no idea how things worked,” La Gamba says. She advises both partners to be very open in terms of managing their finances and not have any hidden lines of credit, credit cards or second mortgages — such financial infidelity is a big cause of marriage breakdown in the first place.
It’s also important to understand spending habits. “It’s almost irresponsible not to have an understanding what’s going on in terms of the things that are keeping you going, keeping your life together, paying your bills, putting food on the table,” La Gamba says. But once a split occurs, she says a lot of habits need to change. Those who don’t adjust — that is, dial down their personal spending — can quickly find themselves saddled with debt. Expectations of how you were planning to spend the rest of your life also have to change, which can be frightening to realize 30 years down the road and 10 years before retirement.