Often in marriage one spouse takes total charge of the household finances. What if you’re getting divorced and that spouse is not you?
You might understandably feel daunted, even terrified, at the prospect of budgeting, tracking income and expenses, and managing debt and investment accounts if those are not things you are used to doing. Take comfort: You are not alone, and there is support available for you.
Many financial planners have ample experience helping newly-divorced people get their financial lives in order. Apart from retirement and the death of a spouse, divorce is one of the biggest reasons people hire financial advisors. And even if you’re starting from Square One, the process of getting up to speed and getting organized doesn’t have to feel overwhelming.
“Finances don’t have to be that complicated,” Stephanie Genkin, a Brooklyn-based certified financial planner, said “I think sometimes the industry makes it more scary and more complicated. I just try to bring it down to a kitchen table level.”
Genkin, who is also a certified financial therapist (psychology and money issues can be very intertwined), offers a sort of “baby steps” approach. Starting from the most immediate concerns, she holds hands while people work their way up from basic budgets to retirement planning. She provided a brief overview of her version of “post-divorce finance 101.”
Divorces emotional impact on finances
Genkin’s unique specialty as a financial therapist comes into play when she works with clients who are getting divorced, particularly when she’s helping through the first step: Getting a handle on their feelings about money, and feelings about the divorce.
“Helping somebody navigate the process is really about getting to know them as a person,” she said. “A lot of this is their relationship with money and understanding what they’ve just come out of,” including what financial pressures they may have, whether they have an income, and whether they have children. She also wants to know what concerns clients most about money.
Some clients “didn’t feel they were comfortable with a relationship with money, or numbers make them nervous,” she said. “We do find very smart people who just can’t look at numbers.”
Often clients who are starting over, and didn’t previously handle the finances, feel embarrassed about their lack of knowledge, she said. It’s important for people to confront and work through those emotions. “I’m very careful not to shame those people. You meet them where they are.”
A personalized budget for a new beginning
After getting a sense of “the whole picture,” Genkin asks: “What do you find is most immediate about your situation?”
“A lot of the time it’s a budget,” she said. “So, we’ll go gently, and itemize some things,” starting with looking at living expenses and other ways the client is spending money, as well as what sources of income there are. Once they figure out what money is coming in and what money is going out, people can start to set targets for how much they can spend while staying within their means.
“I find that a spending plan is often the first thing to help someone gain confidence and be able to manage their day-to-day living in a way that makes sense to them,” she said. “Understanding cash flow is really important for somebody who maybe had all of this taken care of you know, in marriage.”
Unraveling assets and debts post-divorce
Another important step to figuring out your financial life is getting a handle on what all you own and owe, post-divorce. For instance, it’s possible you might end up with real estate. You should understand how much is still owed on the mortgage. You may also need to refinance the loan to “buy out” your spouse’s share of the equity and make sure the property and the loan are only in your name. Inventory what other financial assets you have, such as investment accounts, savings and retirement accounts, and also make a list of outstanding debts including credit cards, car loans and other liabilities.
Building your post-divorce financial support team
If you didn’t manage the finances in your marriage, it’s possible you might not even fully understand what assets you’re left with in divorce. A good way to start to gain that understanding is to look at what professional relationships you have, or that your spouse had.
Those might include tax professionals, accountants, financial advisors, and retirement planners. You can also start to figure out which types of professionals you really need, and which you are better off without.
“Who is your team? Maybe you don’t have them,” Genkin said. Maybe you don’t need any more people right now. But maybe your kids are going to college soon. Do you have somebody who helps with the college financial aid, just seeing what you might need? Even not immediately now, but in the future?”
Sometimes clients will tell Genkin: “We have these investment accounts, and I don’t know what they mean, and it’s my ex-husband’s former advisor.”
“I think we want to move away from people in the past,” Genkin will tell them. “I don’t know where their allegiances are. I don’t know what they charge. So perhaps we could talk about what your needs are. Do you even need an investment manager?”
Setting the course for long-term financial success
When you finally have a budget that makes sense, a full understanding of what assets and liabilities you have and know what financial needs you will face in the future, it’s time to start to think about long-term goals. Those should include retirement.
Investment accounts and retirement accounts are intended to help you achieve those goals, and there are many different kinds that suit different preferences, risk tolerances, and desire to be involved in managing your money. Also, there may be differences in fees and possible tax consequences. If you know what your goals and preferences are, a good financial advisor or financial planner can help you find the right accounts.
Genkin said she had a client who is now thinking about rolling over an annuity plan to an IRA and is looking for a “set it and forget it” type of option. “I want something where if she never thinks about it again, it still gets her to the right place,” Genkin said. “It’s going to move in the direction while you’re sleeping, and you don’t need to know what’s in it.”
“It doesn’t have to be that difficult,” she said. “I do recommend working with an advisor, at least in the beginning, to review what you have and understand what your strengths are and to set up automated systems.”
It’s not necessary to be “an investing wizard” in order to prepare financially for the future, she said. “Just find someone who really connects with and understands your situation and wants to be a teacher, mentor, or cheerleader to help you get there. This is all possible and there are many of us out there who want to do this work.”