Wealth Clarity Blog

Many life changes create great stress–the birth of a baby, adoption, career change, buying a house, relocation, retirement, bankruptcy, illness, financial windfall, last child leaving home. Some are positive and welcomed; some we all prefer to avoid.

But of all the changes that can come in our lives, only the death of a spouse or a child is considered more stressful than divorce.

To put it plainly, the effects of divorce are enormous and permanent.

In our series of articles on divorce we cover various aspects of divorce. In this blog entry, however, I’d like to focus on some legal and financial issues regarding children, if the couple has had them. Unhappily, it’s an issue we’ve developed some expertise with over the years.

Unfortunately, legally and financially divorce is often an adversarial event, with both partners working in their own best interests. Each party must find his/her own advocates and professional support.

In a divorce with children involved, a couple has a lifetime relationship as parents whether they want it or not. During the time the children are minors, the couple must come to mutual decisions on factors affecting the children, some legal and some financial.

This frequently leads to additional trips to court or mediation if the couple cannot reach agreement on their own on custody, visitation and financial support. Even after the children are old enough to make their own decisions, there will be times when the couple is forced to make adjustments to financial arrangements.

Financially, divorce and care for the children involve so many aspects: cash flow, investment assets, education costs, medical insurance, life insurance, trusts and wills. . .the list goes on. All of these issues have to be dealt with under some of the most emotionally stressful conditions people will ever encounter.

It is very important that you work with professionals during your divorce to make sure that the right decisions are made since these decisions will affect the rest of your life.

While every divorce process is stressful, being properly prepared, having a team of strong advisors and building an effective support system will enable you to get through it with the least disruption possible.

This is important not only for you, but for the children.

Unfortunately, divorce is an issue we deal with somewhat regularly at Highland. While every divorce is different, one factor is consistent: All financial decisions have to be made in the context of one of the most emotionally unsettling periods of your life.

We’ve recently written a set of articles on the many issues related to divorce. You’ll find these in our Learning Center. But I thought I’d write some blog entries on the topic too. Today I want to write about one of the important personal issues–adjusting to the “new normal” that follows divorce for everyone.

During the divorce proceedings, legal, financial and family events and crises tend to define your days. After divorce, you must get adjusted to your new world. The adjustment back to normal is different for everyone – and highly dependent on the changes that occurred.

Clearly there will be a change in your lifestyle, as there are now two separate households. Hopefully, your divorce settlement has left you in solid financial condition. Chances of this will be better if you work with experienced lawyers and financial advisors who can help you make rational decisions in the midst of such an emotional situation.

The challenges you face will depend to some extent on your personal situation: Do you have minor children still living at home? Are there adult children living on their own? Were you happy to obtain the divorce or were you brought through it kicking and screaming, still hoping for reconciliation?

The answers to these questions will affect how quickly and easily you come through this adjustment period. But realize that no matter how troubled you feel right now, things will get better over time–as long as you allow them to and have proper supports. A new “normal” will come.

Dating and New Relationships
Although friends may encourage you to jump right into dating again, do not rush this. Rebound relationships usually bring more heartbreak than not. Right now you need to concentrate on your own needs and find out who you really are and what you really want. You need to determine this before you get too involved in a relationship with someone else. The old flight attendant warning to “put your own oxygen mask on first” applies now more than ever.

Friends and Other Family
Your divorce may cost you some relationships. Keep busy (but not obsessively so) with activities where you can meet new friends. Your self-esteem has been damaged so you need to concentrate on recovering it.

Make sure to eat properly, get exercise, learn to relax and enjoy yourself again. It’s important to maintain important friendships from before your divorce – and it’s equally important that you develop some new friendships. This balance of familiar and new friends will help provide a perspective and provide a support system as you delve into your new life.

Children
If there are children involved, make sure you do not use them as messengers or spies. Do not allow your ex-spouse to do this either. If you have a question of your ex, call or e-mail to get the answer. Don’t send the message with your children.

Do not force your children to choose between you. Your ex is still your child’s parent and your child should continue to love both parents. In any contest between the parents, the children lose.

Make sure that neither you nor your relatives or friends make negative comments about your ex in the presence of the children. In fact, when others try to speak negatively about your ex, let them know that this is a chapter of your life that is closed and do not wish to reopen. Then change the subject.

Mediation
If your relationship is so bad with your ex that you cannot even e-mail, then use a non-family adult mediator. Fortunately, even in many of the most contentious divorces, over time both spouses can become removed enough from the extreme emotions of the divorce and at least be civil with each other, especially with regards to the children. This is best for all concerned.

Counseling
If you are having difficulty facing each day now, there is no shame in seeking professional help. Find a support group of others dealing with divorce and/or find a therapist with experience in helping people after divorce.

Professional Life and Advice
It is important to maintain a support net of professionals even beyond the day the divorce becomes final. Although you have done careful planning for the future, changes continue to occur in the wake of divorce. Some changes are predictable, some are not, but their impact on your financial picture can be lasting.

There may be new jobs, new opportunities, changes in the marital status of either individual, or countless other unforeseen events. Don’t allow your hard work and planning to go to waste without consulting a professional to help you adjust wisely to your changing “new normal” of your life.

Most importantly, once your divorce is final, it is time to let go of the “old normal” get on with your new one. A door behind you has closed, but several doors lay ahead of you. It’s time to find out what is behind those doors for your new life.

While good data are hard to come by, experts estimate that about half of marriages end in divorce. For second marriages, it’s near 70 percent.

As a result, many clients have sought our help with divorce over the years and we’ve gained a great deal of expertise in the issues. We’ve recently created three documents that fully explain some key financial issues related to divorce. You’ll find them in our Learning Center. But I thought I’d blog about some key points here and over the next few days.

Let me share some myths about the legal and financial aspects of divorce that can affect people’s emotions and actions:

Myth 1: The divorce process and details will be private.
Divorces, particularly adversarial ones, leave a public paper trail of court actions. In Washington state, all marital assets are subject to division by the court, with many documents falling into the public domain. If expert witnesses are called, the public record of personal and financial details builds.

Myth 2: Property division is equal.
Washington is an equitable–not equal–division of community property state. This means that property can be divided disparately in favor of the “disadvantaged” spouse, defined as the one who earns less and is therefore viewed as needing more in the divorce settlement.

Myth 3: No-fault divorce laws prevent issues that led to the divorce from affecting division of assets.
There are key exceptions that can affect financial matters significantly. It’s vital to know what they are.

Myth 4: A no-fault, low-conflict divorce can be handled quickly.
A typical divorce can take between one and two years. It can take much longer for a complex divorce where the parties involved cannot come to terms.

Myth 5: You can handle the financial aspects of divorce personally.
Divorce is so emotional you can wind up making a financial decision with huge consequences due to your feelings rather than the facts. Having legal and financial counselors who can help you see issues clearly, without the weight of emotions, can make all the difference in the world.

I’ll continue to blog on the topic of divorce. But please take advantage of our three articles in the Learning Center if you want to learn more.

A recent entry by Martha C. White at The Big Money, titled, “The Dow is Too High” echoes my recent thoughts on the financial markets and economy.

She argues that while we appear to have avoided a depression, as evidenced by the 60% plus rise in the S&P 500 since March, the recovery is anemic at best:  Fueled primarily by government spending and corporate cost cutting, and plagued by non-existent job growth and tepid consumer spending.

Is it possible another bubble is being created by cheap money?  Without substantial evidence of real and sustainable economic growth, and the lack of retail investor fund flows, the markets may be on very uncertain footing.

An interesting side note:  I went to the shopping mall on Sunday (Bellevue Square) with my wife, and it was amazingly crowded.  The symptoms of guilt-free consumption seemed evident:  hard to find parking stalls, crowded aisles and stores, and lots of packages being carried by carefree shoppers.

It was pretty easy for me to dismiss the observation as very unscientific. In addition, Bellevue, Washington, with the higher-than-average income, is an anomaly It’s more likely a sign of early holiday shopping in an affluent area.

It was the comment by a Pottery Barn clerk (yes, I was with my wife) that left me wondering.  When asked how sales where going, she said, “This is the most people I have seen in the mall yet, and we ‘re very happy with our sales, especially given the economy.”

As I have mentioned earlier, the consumer, for better-or-worse, will be a critical factor in establishing our “new economic normal.”

Speculating on the direction and timing of a U.S. economic recovery is becoming an art form.  V’s and W’s are among the notable shapes being used to describe how the likely recovery might play out.  A few financial experts are even resorting to math symbols, including the square root sign.

Federal Reserve officials aren’t immune from wanting to predict the future as evidenced by the recent article titled, Fed Officials See Choppy Recovery for U.S. Economy, published by Reuters, a global financial news and information source. 

The article isn’t valuable for the alphabet soup used to describe an economic recovery, but instead the key issues that need to be monitored as the economic story unfolds.  I have previously written about how and why we may see a very different U.S. economy in the future, and how to deal with the uncertainty created by the “new normal,” if you want additional background information.

The Reuters article reinforces these important points:

1.  High unemployment will remain high:  Businesses are seeing the potential for new hires as the climate has stabilized, but many are still playing a waiting game.  it is important to note that employment is a lagging indicator, meaning that we may not see unemployment decrease until after we have confirmation of a growing economy, not the reverse.

2.  Reluctant consumers create a drag:  Even for wealth creators, spending less is socially “in” and actually feels good.  In general, most of us are adopting a do-more-with-less mentality.  Further, with an erratic economic backdrop, how “wealthy” we feel impacts consumer spending patterns.

3.  Interest rates to remain low:  A key factor in how long before interest rates rise will be our ability to attract investors to U.S. Treasury debt, or to salvage a depreciating U.S. dollar, or both.  Cheap money i.e. low interest rates have contributed mightily to the current speculation in the commodities and other financial markets.  A quick reversal could have  significant ramifications on the fragile state of the economy.  I’ll be talking about this risk in an upcoming entry.

4.  We are stealing from the future:  The over $1 trillion in stimulus money has the effect of robbing growth from the future.  While the various government programs have been necessary emergency measures, it will be critical to reduce our national debt as a percentage of gross domestic product (GDP).  A famous line from the movie Top Gun says it best (paraphrased),  ”We’re writing checks our body can’t cash.”