Money & Policy

Picking Up the Financial Pieces After Divorce

Ending a marriage may rock your retirement plans, but shouldn't ruin them

(This article appeared previously on MarketWatch.)

My wife used to say that we were destined to live through a lot of financial problems or difficult situations just so I had something to write about.

And over more than 20 years as a personal finance columnist, I’ve experienced everything from lost wallets, identity theft, mistakenly credited electronic payments (a credit union was deducting a co-worker’s insurance payments from my checking account) — all the way up to an audit.
The one thing I figured I’d never write about from a personal point of view was the financial consequence of divorce. As a result, it was also the one thing I never planned for financially.

(MORE: 6 Money Matters After a Divorce)

But with a court date approaching, my financial life is changing as much or more than my personal life. The interpersonal relationships are all good, but the financial ones are new, and often shaky and tenuous.

Divorce Happens

While I don’t want to spend too much time divulging personal details, one thing the experience has taught me is that — barring a prenuptial agreement or a split that’s both amicable and planned because both parties want it — there’s no good way to prepare for divorce and that the financial consequences could last for a lifetime.

The same can be said for plenty of traumatic life events — health-care problems are a driving factor in many personal bankruptcy cases, for example — but the real issue becomes how people handle what happens next.

Most people quantify their losses in dollars and cents, when the real issue is different.
In my case, for instance, consider the difference between where I stand in retirement readiness now compared with where I will be when the divorce is complete.

(MORE: Retirement Saver's Worst Mistake)

In 2012, Fidelity Investments released compelling research showing that employees need eight times their ending salary to meet basic retirement income needs. Moreover, Fidelity set up checkpoints, markers on the road of life where someone might want to measure their progress toward the ultimate goal, for replacing 85 percent of pre-retirement income.
The idea is that to reach the target, a worker should save about one times his or her salary by age 35, three times his or her pay by 45 and five times the salary by age 55. There were some caveats and conditions to the research — Fidelity assumed someone would live to be 92, for example — but the numbers stuck with me because the investment company said the final goal included all savings and not just the dollars set aside in a workplace program like a 401(k).
Now bring this down to real life — again, I recognize that this affects many people, but the example here is my own.
Falling Behind After Being Ahead 
As a couple, my wife and I were ahead of the pace necessary to retire comfortably, even if it didn’t always feel that way. Looking at the portfolio and retirement savings, the math said that I had surpassed the target for age 55 prior to my 52nd birthday.
By the time I reach my 53rd birthday in June, however, the divorce will be complete, the assets will be split and I will be behind the curve, facing a game of catch-up that I saved my entire life trying to avoid.

Worse yet, going through a divorce doesn’t leave much in the way of available resources to start trying to recover immediately (because there are extra expenses that come with establishing a new single life). Even if you try to start the process as soon as possible, it is going to take a few years to be able to truly focus financially.

I’m not bitter as I write this; although I'm an optimist by nature, I also have no choice but to recognize that there won’t be any coasting down the home stretch to retirement.
The idea of working longer doesn’t bother me — I’m not really planning on truly retiring anyway — but having had a heart attack at 48 and working in a rapidly-changing business in which my graying hair isn’t necessarily seen as an asset — I am bugged out by the idea that I could miss out on the comfort that 30 years of planning should have afforded.
Dividing Assets and Making New Plans 
Like most people thrust into a fairly sudden life change, the real question is, “What next?”
There are a lot of challenges in disentangling our assets without making mistakes that could lead to tax penalties and other problems; those must be handled delicately but properly, and in a timely fashion. But as that process is completed — and basics like wills and beneficiary designations change — the next phase really gets under way.

(MORE: Why Your Will May Be Out of Date)

For me, rebuilding starts with coming up with a new plan, recognizing that the stability of a 30-year marriage is gone and that a lot of things could change between today, retirement and beyond.
From a financial standpoint, separating and dividing our combined assets means destroying a balanced portfolio, leaving pieces of it to each of us. They’re good pieces, but neither of us is left with a complete, well-balanced portfolio.
Rebalance Your Portfolio and Your Life 
That is the first step to make financially, evaluating the assets that remain and sizing up the new, reduced portfolio. (For example, many of our aggressive assets were held in my name, so I’m left with a portfolio that may be too risky for someone my age (and the pieces she retains would leave her a portfolio that’s too conservative).
Coming up with a new allocation and then executing a plan to pursue it — so that money flowing into the portfolio builds the right assets — is critical to being well-positioned when the next milestone approaches.
Likewise, re-evaluating cash flow and projecting it forward — including a fresh spending analysis — is essential to determining what’s possible.
You don’t want to be so busy playing catch-up that you make it hard to establish yourself in your new life, whatever shape or form that’s going to take.
To me, the key isn't so much taking a snapshot and then trying to reach some ideal picture of the future, but rather not rushing into anything, while reshaping what is left and determining what is possible.
This wasn’t something I planned for or was seeking, and it most assuredly will create some financial concerns if not outright hardships. But if the focus is on smart money management and good outcomes — both in the portfolio and in relationships — it doesn’t have to be the ruin of an otherwise well-lived financial life.

Chuck Jaffe is a columnist for MarketWatch

By Chuck Jaffe
Chuck Jaffe is a senior columnist for MarketWatch. Through syndication in newspapers, his "Your Funds" column is the most widely read feature on mutual fund investing in America. He also writes a general-interest personal finance column and the Stupid Investment of the Week column. Chuck does two weekly podcasts for MarketWatch, and frequently makes guest appearances on television, and on radio shows across the country.

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