Financial lessons from my divorce
January 23, 2012
When Samantha (not her real name) filed for divorce from her husband of five years, she wanted a clean financial break.
Although her stockbroker husband earned more than twice her $80,000 annual salary, she didn't feel it would be worth the emotional expense to try to divide all of their assets equally.
Having witnessed her parents' difficult divorce -- and the toll it took on her family -- she didn't want to make the same mistakes herself. Plus, she knew her husband's competitive streak could make negotiations difficult.
So for Samantha, who has since remarried and now has three children, her guiding principle was clear.
The value of peace
In the midst of a divorce, individuals must often make difficult choices. The decision whether to lobby for all they're entitled to or to seek a more modest settlement in the name of peace can be one of the most complex.
Wanting to avoid a bitter and lengthy conflict, Samantha took an approach that placed harmony over financial gain.
"The money wasn't going to make that much of a difference," she says. "I could have asked for alimony, but we didn't have kids, so it didn't make sense to me."
Samantha says to her it was more important to have an amicable divorce than to wring every dollar she could from the experience. She says her rule throughout the divorce was that you can't put a price on having peace of mind, and avoiding a cut-throat divorce negotiation was her way of achieving that.
So she decided to forgo her interest in their biggest asset -- a suburban home worth about $220,000 at the time in the late '90s -- but the former couple split their savings, retirement and investment accounts. Further simplifying the situation, the couple had no debt.
"Being able to give up a little bit and make it easy seems far better to me than if we got bitter and went to [separate] lawyers and went through that financially and emotionally,' she says.
But she notes that different circumstances could have swayed her view.
"If I had kids at that point, it would have been a different story," she says.
This strategy of streamlining the financial business of a divorce makes sense in cases where the assets are limited and there are no children involved, says Richard Barrington, senior financial analyst for MoneyRates.com.
"If you're trying to get it down to the last nickel, you can end up spending more time and money and aggravation than it's worth," Barrington says. "Being willing to make some compromises to get not quite 50 percent is an understandable thing."
Looking back on the settlement
Samantha didn't walk away from the relationship without some valuable assets. She and her husband split about $150,000 in retirement funds and other stocks purchased through his employer, as well as a small savings account.
In retrospect, however, she might have handled some of this slightly differently.
"I had to pay taxes on the stocks later," Samantha says. "So it probably wasn't the wisest decision. I should have had him cash me out."
Samantha's experience underscores one of the important lessons about dividing assets during a marital break-up: Equal is not always equal, according to attorney Steve Mindel, a certified family law specialist and managing partner of Feinberg, Mindel, Brandt and Klein in Los Angeles.
"If you get $100 worth of pension money, or get $100 in your Bank of America savings account, it's not equal," Mindel says. "You can't access the pension fund for years without penalty. When you access it, it's going to be taxed."
With laws varying in every state, it's also a mistake to assume that certain assets that were held before the marriage will automatically be retained by the original owner, or that joint property accrued during the marriage must be split.
Only eight states are community property states, meaning all property is subject to an equal split, while the remainder are separate property states.
"They all have various rules for equitable distribution," Mindel says.
In rebuilding from a divorce, some key financial lessons often emerge:
- Put your agreements in writing. Prenuptial and postnuptial agreements allow both parties to determine how finances will be shared during -- and if need be -- after a marriage.
- Pay attention to your finances. Keep track of your joint accounts during marriage, even if you don't use them yourself, so you're not caught by surprise to find out your unemployed spouse liquidated a $1 million retirement account to make ends meet or accrued debt without your knowledge.
- Ask an expert. Hire an accountant to help tally the real value of all property before determining how it will be divided.
- Keep a paper trail. Keep on top of tax records and other financial documents to establish how much spousal and/or child support is warranted.
While Samantha got what she wanted by voluntarily leaving some things on the table, this strategy isn't for everyone. Every divorce is different, and a peaceful settlement may not be possible for those who seek everything they can get.
But while people may go into it with varying goals, happiness in divorce, as in life, is where you find it.