Personal finance guru Ruth Hayden was back on The Daily Circuit Friday talking money and divorce. About 1 in 10 marriages end before the five-year anniversary and 1 in 4 don't make it to the 10th anniversary. When a marriage does end, financial struggles often make the process more challenging and painful.
What are the best strategies for dealing with the inevitable financial bumps in the road? And, if your marriage does end, what are some steps to take to ensure that all parties can protect their assets and not end up in financial ruin?
Women need to be more prepared for the possibility of divorce. According to the U.S. Census Bureau, a woman's lifestyle drops 37 percent after a divorce. A man's lifestyle goes up 63 percent. "Women have to think about it more because of the damage financially and the vulnerability it puts them into and many times children," Hayden said.
Prepare for divorce like you'd prepare a will for your death. Hayden said couples often don't discuss the possibility of divorce during the start of a marriage because they think it's a divorce wish.
Create a plan at the beginning of the partnership. "Some kind of agreement where we say, 'We're going to do our best to make this work, but if it doesn't we want both of us to walk out of here whole," Hayden said. "And I think it's done in love, where we say we don't want either one of us to be vulnerable and we want to make sure that if we have a fight, we already know what will happen if we don't make it so nobody has to get into fear."
Keeping the house isn't always the best decision. "Five years later, women say that's the biggest mistake they made," Hayden said. If the house is a struggle to financially keep up with two incomes, don't get stuck drowning in a mortgage.
Keep your retirement money. There is a way to split retirement and pensions through a Qualified Domestic Relations Order. Women often take the cash value of their retirement, Hayden said, and use it for cash flow instead of adding it to a new retirement account.
Think about the tax ramifications of your assets and forecast their value over time. "All assets are not created equal," Hayden said. "We have to look at the quality of the asset; we have to look at the tax ability of the asset."
How did divorce affect your finances? Join the live chat.
Personal finance expert Ruth Hayden is on the air with Kerri right now discussing money and divorce. Tune in to MPR News.
Have you been divorced? How did it affect your finances?
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Who is Ruth? She's been a regular on MPR News for years so chances are you know her, but here's her bio:
Ruth Hayden is a nationally recognized financial consultant, educator and author based out of St. Paul, Minnesota. In 1982 she founded Ruth L. Hayden and Associates, Inc., a consulting and educational company. As an educator, she is known in the industry for her financial innovation beginning in the early 1980s in establishing the relationship between emotions and money. Today we know that as Behavioral Finance.
She is the author of four books. Your Money Life: The "Make-It-Work" Workbook is her most recent book. This workbook is a hands-on approach to learning about money. She also published Start Where You Are: Retirement Planning in a Changing World, a pragmatic and holistic guide to planning the retirement you want. In 2003 it won the MIPA book achievement award.
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“There’s usually a spouse who is afraid they’re going to be bled dry and another who is afraid they’re going to be homeless. It’s always a financial problem for both,” said Nathan Cobert, CFP, of Cobert Financial Group in San Francisco.
"Women need to think about divorce," says Ruth. Women neglect planning financially before a break up.
I agree with Nathan. My ex-husband and I were already in trouble when I was laid off from my low-paying job. He made six figures but was controlling- it was "his" money, not "ours", despite ten years together. I tried to "wait" until I got a job but finally left the verbally abusive marriage while unemployed- I got nothing. He threatened a years-long fight in court if I tried to get any money. My lawyer was terrible and expensive. I have since found a job but am pretty destitute, and I'm really struggling to get financially secure. Yet I don't regret leaving for a day.
According to Ruth, there are 3 life scenarios for a couple:
1) Living together. How will we make it work?
2) Divorce. What will happen if we break up?
3) What happens when one of us dies?
Ruth thinks there should be a plan for divorce like you have a will for death. She would like to see couples make a divorce plan when the wedding happens.
When I got divorced from an accountant he stuck me with 90,000 dollars in debt and I had to support the kids in terms of health insurance etc... he would not! Good thing I had a good job but I still had to go back to my parents for help. I still am so much happier.
@DailyCircuit how can I set up to protect myself from losing the house, that I own, my grandparents built, and has always been in my family?
An divorce agreement during a "happy" time is such a great idea. I wish I would have had one.
Five years after a divorce, Ruth says women often regret hanging onto the family home.
I'm recently divorced. Financially we were fine EXCEPT our house is massively underwater. We are letting it go to foreclosure. In the meantime I don't have a credit card. Actually I did have one, but they closed the account because the mortgage wasn't being paid. I think I will have to be a cash paying person until the foreclosure is completed. (I'm glad I have a debit card.) Will I have trouble because of my credit rating when I need to move from this house and want to rent?
It's extremely difficult to make broad statements about women vs. men following divorce. Many studies don't take into account taxing differences, child support and the plethora of government programs that are available for single parents. I know many men who struggle to pay child support and live in their parent's basement.
I gave him the house, we split the retirement monies but he hid monies which no one can find. He stuck me with unsecured debt, huge sums.
Child support is tax free for receiver, yet all income of payer is taxed. The custodial parent get the tax deduction, earned income credit, child care credit, and child credit. These add up to a huge difference in usable income.
What if your spouse is an atty and offers (insists) on processing your amicable divorce. Bad idea, yes?
I was grateful that my family was able to fill in the financial gap to make the mortgage for the 3 years it took to sell the family home.
I was overly optimistic that I would be able handle the expense even though I had always handled the family finances. I inherited all the debt since my former spouse was homeless and unable\unwilling to contribute anything except court ordered child support.
From Fox Business:
#6 of Top 7 post-divorce money mistakes:
What happens when one parent can afford more and better things for the children post-separation? The less wealthy partner sometimes attempts to keep up with or even outdo the other.
"Oftentimes, there is a pre-divorce battle for the children's love and affection by purchasing gifts for kids or taking them to concerts or cruises in order to gain their affection over the other spouse," says Alan Ross Frisher, a certified divorce financial analyst from Melbourne, Fla.. Question your motivation for purchasing certain items for the kids. If it's to prove your love, stash the cards.
We hate to lose 2 times as much as we like to win. Don't let that instinct kick in during your divorce, says Ruth.
The legal system in Minnesota causes the most financial hardship on people divorcing. I was the bread-winner and divorced my husband who made 1/2 of what I was making yet had access to bottomless pockets lined in cash (family wealth). The family court system doesn't look at that all resources of the parties, only immediate income and assets/liabilities. Combine this with a bitter, manipulative ex who didn't want a divorce, and it's a recipe for financial disaster.
All these logical things sound great, but for years I tried EVERYTHING to save the marriage- a break, counseling, acquiescing, even yelling back a couple times... I was so terrified of the cruelty of my ex by the end there was no "logical" talk to have.
After a J&D was in place, I tried to negotiate a childcare change with my bitter ex over a $572 problem...I asked him to cover it since I was already paying a disproportionate share of support. He turned around and took me back to Court, and we each spent tens-of-thousands on legal fees over a $572 problem only for me to lose in the Court system (his family paid for his legal fees - lucky him!). His parents also bought him a townhouse. Wish I would have known then what I know now.
Inherited money is left out of the system, confirms Ruth. It does not get involved in the divorce process. The court sees this as logical. There is no way to get a divorce that seems fair.
Hey! What happened to my comments?
Charlie, they are still there. They get moved down as new comments are added.
@kerrimpr As a child of divorce I was affected by the loss of support for college, whereas all my siblings were supported.
@AnonymousJP Ruth says that is a bad idea. And, in fact, since attorneys often know one another and network, try to find someone who doesn't know or work with your spouse.
After 32 years of marriage, my husband and I were divorced. Our business was farming. He wanted me to accept $30,000 per year and maybe buy me a car during negotations. We went to court and did spend a lot of money in legal fees, but it was worth it for me because the decision of the court was to give me all of the farm land and now he is my lessor (renter). Divorce is so damaging emotionally and financially.
The most divisive thing about divorce is child custody. The one who gets custody gets the children and the money. A presumption of shared parenting would end this fight.
Ruth is mistaken about the helpfulness of attorneys. They are very likely to escalate the conflict and cost too much. She's also mistaken that "both people grumbling" is a good result. With a healthy conversation, both spouses can actually feel good about the decisions they make. That "both sides unhappy" scenario is only when lawyers are involved.
It's bad policy and a bad system when wealthy people can leverage the welfare system in Minnesota after a divorce. Even though I was paying my ex support on time and never late with a payment, he opted to enlist the support of the County welfare agency to withhold income from my paycheck. How much money could the taxpayers of Minnesota save if this abuse was cut out of the system?
I was surprised to find when I moved out of our joint owned home and called the utility companies to have my name taken off the accounts I was told my husband (before the divorce) would also have to call them. Later my credit was affected because he didn't call and didn't pay the bills.
What happens when a married couple buys a house, but the mortgage is only in one spouse's name? What happens if they divorce?
Ruth says, if you both lived there and contributed, it marital property. However, if there is a pre-nup, it is considered a pre-marital asset. But check with an attorney!
How can my sister come out well in her upcoming divorce when her soon to be ex has lost his job, is in treatment and on disability. The house is in her name because he was at the time of purchase was self-employed. She can't continue to make payments. His disability check is almost what her income is. She is supporting their son without taking any money from what they had in their joint account. Any ideas? Help!
Ruth says try to get a consultation with an attorney. It sounds like the house will need to go. Your sister should think about where she could live so she could be safe. Also try Chrysalis.
what about single moms with no income? my husband makes over 80k and can afford all the best lawyers, i make nothing, never worked since our marriage, almost 10 years, took care of the kids, what are my options? i know lawyers make all the difference
Ruth says look for women's organizations that bring in divorce lawyers for consultations. Like the Chrysalis Center. They have family law attorneys that volunteer time. Meanwhile, gather as much financial data as you can.
A statistic was cited that women in general end up with a lower standard of living after divorce. What was brushed over was why should we guarantee an equal standard of living for couples who are divorced. It doesn't sound fair and may not be a popular opinion but if you don't have the ability to make an income on your own, then you should not expect a comfortable living after divorce.
@Laura. You need to step up, get clear about what you think is fair, and communicate it directly to your husband. Yes, you don't want to get into a lawyered-up fight with him. A good mediator can help you have a good conversation (but avoid pushy mediators, you need the kind that will support you in making your own choices, and help you stand up for yourself).
Is there a way to protect husband who had one disastrous financial escapade after another which is a large part of seeking a divorce now. If I have significant 401k assets I am afraid he will destroy "his half" within a a year of an upcoming divorce.
Ruth says, you need to let it go. If you could get this to work while you were married, you would still be married to him.
There is an innovative divorce process called Collaborative Divorce that meets the emotional , financial, and legal issues of the divorcing family. Collaborative Divorce teams include attorneys, child advocates and financial neutrals. All parties are committed to keeping divorce out of the courts. In Minnesota, you can find information at www.familymeans.org and at the Collaborative Divorce website. It's a great new option. Started in California and has successfully moved to Minnesota and elsewhere.
Ruth says this works best when partners are equal and can talk about money.
After 35 years of marriage, we are thinking of divorcing. Both of us are planning on retiring within the next year. How are our pensions (both are government pensions) and social security affected by divorce? Is there a difference in financial divisions of these in whether we divorce before or after our retirements?
Ruth says in this state, everything is split. Pensions, 401k. Split. Ruth says since you are talking, go to an attorney and strategize. No need to wait until after retirement. Since you've been married 10 years, you can take either your social security or your ex's.
Collaborative Divorce actually started here in Minnesota, thanks to a local lawyer named Stu Webb. But I don't recommend it. Yes, they include many experts in the process. Those experts cost money. And their process is very controlling, run by the lawyers. Couples actually have the capacity to manage this process themselves much more effectively.
I'm a retired lawyer who has handled divorces and drafted complex antenuptial agreements. I have several issues with what is discussed. First, most couples do fight over money, they don't have enough. Given that, it is not possible for both to walk away whole, when they don't have enough to be "whole" in the first place. Second, no good lawyer who drafts antenuptial agreements fails to insist that the agreement is reviewed by the other party's attorney and is signed weeks before the wedding ceremony. Even a cursory review of cases challenging these agreeements will see that springing one on a party shortly before the wedding is an invitation to disaster.
I've used a preface of, "In order to see if we understand and to clarify what we think, how about writing it down?" Then the step to make that an agreement is usually easy.
I was one of the callers on this topic and Ms. Miller and Ms. Hayden completely misrepresented my comments about the use of mediation. I did NOT leave my former wife without reitrement. She had a healthy retirement account of her own and I contributed almost $40K to it upon our divorce. This amount was determined by an actuary who projected my retirement into the future and said by paying $40k into my former wife's retirement account upon our divorce, I would be helping her have the same retirement resources she would have had if we stayed together. By the way, she moved into a new house upon our divorce and I moved into a condo. In addition, I have faithfully paid my child support because I can think of no better way to spend my money than on my lovely and successful daugther.
What assets are excluded from a split? What happens to assets in trust?
If the trust is inherited, it is left out. Family money is left out. If you have a pre-nup, pre-marital debt and assets are left out.
@Leo Yep, I heard them make assumptions that weren't necessarily what you described. I'm afraid Ruth's assumptions are designed to scare people into thinking they need experts, when they often don't.
Ruth is signing off. Thanks to everyone for all the comments and stories!