The first step in helping a divorcing woman understand her financial situation is illustrating both the short- and long-term financial impact of her potential choices.
By Pamela T. Lasher, Divorce Financial Analyst
Divorcing women must face the challenge of making informed decisions about their wealth at a time of intense stress. Typically, they are dealing with loss, fear and other overwhelming emotions, which can make it difficult to be objective. Nevertheless, they still need to look out for themselves and often their children, both now and in the future.
Over the course of more than 25 years spent assisting women in transition, as well as many hours spent interviewing leaders in this field, I have learned that a good Financial Advisor and Certified Divorce Financial Analyst® (CFDA®) can be an invaluable resource and support before, during, and beyond divorce.
Decision-Making for the Divorcing Woman
For women confronting divorce, even coping with day-to-day decision-making often can be a daunting task. Unfortunately, during this trying time, these women will need to make some of the most important financial decisions of their lives, and these decisions cannot be put off until later. For many, the financial issues they will need to deal with may not be familiar to them. The majority of the decisions they make and the agreement that is reached with their ex-spouse will be nearly impossible to reverse later, so these decisions will have a long-lasting impact on their children and themselves.
Financial Decision-Making for the Divorcing Woman
According to the most recent statistics from the U.S. Census Bureau, women comprise more than half of the professional and technical workforce. And yet, only 19% of women say they feel confident about their financial decision-making ability and only 47% say they would be comfortable discussing money and investing with a financial professional on their own.
If a woman has relied on her spouse to be the primary financial decision-maker, she may lack the confidence to make those decisions on her own. For many women, this is an obstacle even during good times, not to mention during a period of duress. In my experience, these women are often financially capable but doubt their own abilities.
Financial Confidence Begins with Education
For women who lack financial knowledge, education is crucial. In fact, a recent study found that women are eager for information about financial planning and investing and more than 80% want to get more involved in their finances.
It is essential for women who are going through a divorce to gain a thorough understanding of their financial situation, including:
- The value of the marital assets,
- How they are taxed if those assets are withdrawn,
- The impact of cost basis,
- Capital gains treatment on the primary residence,
- And much more.
Financial savvy doesn’t happen overnight; it takes time to build and it requires patience. A smart approach to education begins with getting to know the woman over time and understanding her individual learning style. Is she a visual learner? Does she prefer graphs, illustrations, spoken words or text? As adult learners, most of us need to be exposed to new concepts several times and in several ways for them to really sink in. Of course, stress also has an impact on all areas of cognition, including memory and reason. For women in the throes of divorce, it can be extremely difficult to grasp new concepts, particularly ones that may have caused them anxiety in the past.
The first step in helping a divorcing woman understand her financial situation is illustrating both the short- and long-term impact of her potential choices. For example, what are the consequences of holding onto the house and all of its expenses, as opposed to downsizing and taking a larger portion of the investment account or retirement plan? Or, what is the impact of withdrawing from her ex-spouse’s 401(k)? Will she need to go back to work to cover her expenses? How much income will she need? A good financial advisor should plan to discuss and explain these issues several times, being careful to avoid the use of industry jargon.
Decision-Making for the Divorcing Woman: Starting Fresh
For a woman starting over on her own, it is important to develop new relationships with a new network of advisors who are on her side. In addition to a divorce attorney and wealth manager, she should find a CPA and estate planning attorney to form the core of her new professional team. It’s important to work with professionals who are competent, empathetic, and well-versed in the concerns of divorcing women. It may also be useful to include a therapist, personal trainer, nutritionist, real estate broker or career coach to the team, if appropriate. Often, an experienced wealth manager with a broad network will be able to provide qualified referrals to the right professionals to add to the team.
Creating this new team will help the woman begin to take control of her finances with a clean break from the old financial issues and relationships. She should feel confident that her new team will continue to work together and to support her as she begins her new life, with all of its choices and financial requirements. Moreover, she will feel empowered to make the best possible decisions for herself and her family, and she will be doing so from a position of knowledge, strength, and clarity.
Turning Challenge into Opportunity
Consider Charlotte, who was referred to me by her divorce attorney a few years ago. Charlotte’s husband of 20 years had decided to move on without her. Charlotte had to organize all of her finances, determine what her new budget would be, find a new place to live, get used to being alone, and deal with all the maintenance of running a household on her own. She was worried about her teenage children. Charlotte had lost her appetite; she was frail and thin. She still needed to make important decisions about the house, get a job for the first time since her children were born, ask for alimony and plan, all while dealing with her grief.
Charlotte’s attorney was the only other professional on her team, so we prioritized and found her a new CPA, estate planning attorney, and insurance agent who helped her with immediate needs, including filing taxes, establishing a new health care proxy and power of attorney, and insuring her new condominium. I helped her to stay on track, scheduling meetings for her and acting as a quarterback for the rest of her team. Soon she was surrounded by a safety net of competent and empathetic professionals working toward the common goal of helping her through the transition and supporting her in the next stage of her life.
Today, Charlotte is enjoying her new life in her condominium near the water. She feels at ease because she knows she made decisions in an informed and methodical manner. While her settlement may not have been optimal, Charlotte knows she did the absolute best she could during a difficult situation. She has found a job and improved her relationship with her children. Most importantly, she is healthy again and she feels more powerful and in control than she ever did when she was married.
I love working with clients like Charlotte. By walking her through the difficult decisions she needed to make, laying out her options in a clear and concise manner and putting together a professional team that is uniquely hers, I’ve had the privilege of watching her thrive in the wake of her divorce.
Pamela T. Lasher is a Vice President, Financial Advisor, and Financial Planning Specialist at Morgan Stanley who has earned designations as a Certified Financial Planner® (CFP®) and a Certified Divorce Financial Analyst® (CFDA®). With more than 30 years of experience in the financial services industry, Pam enjoys helping people deal with the decision-making that accompanies change – whether it is changes in their lives or changes in the markets. fa.morganstanley.com/vinebrookgroup
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