By Joshua C. Beas, CISP, CDFA®
At CooksonPeirce Wealth Management, we know that emotions can erode an investor’s wealth — especially the emotions that occur during a divorce. Fear, greed, and impatience are driving factors that may contribute to irrational, and often regretful, financial decisions.
As a Certified Divorce Financial Analyst (CDFA®), I have coached and advised several clients through their divorce, which always brings these emotions into play. While these emotions cannot be avoided, they can be controlled if you understand what is contributing to them.
Managing Three Common Divorce Emotions
Here are three of the most common emotions I have witnessed with my clients, along with suggestions to help manage their energies.
1. Fear — More often than not, this is the emotion I find to be most commonly expressed among those going through divorce: The fear of not knowing what tomorrow will bring, or if tomorrow will be better than today. With fear, there comes a fight or flight mentality with a divorcing spouse sometimes ready to throw in the towel shortly after the process begins.
This is the time to gather your composure and educate and organize yourself. Doing so will create a level of stress that challenges your resolve as you begin to live a new daily routine. Adjustments to new living arrangements, childcare, becoming more financially aware —this newness can become overwhelming. However, taking the time to prepare for the divorce can help mitigate the fear.
This preparation can start by hiring the right team of advisors and weighing which divorce strategy may work best. You can consider mediation or a collaborative divorce if you and your spouse are amicable, which will potentially reduce time, expense and additional emotional drain. Take inventory of everything you own, both financially and physically (e.g., art, jewelry, collectibles, safety deposit boxes). Also, be aware of what your current income and expenses are.
Close any joint accounts and be sure to run a credit report for yourself. If children are involved, understand custody arrangements (physical versus legal) and how this may play into your new lifestyle and theirs. Addressing these preliminary items head-on will allow you to focus more on yourself, which is often overlooked during this process, and help reduce the suffocating pressures of the divorce.
2. Greed — The desire for revenge on your soon-to-be ex-spouse, or belief that you deserve more than half of the marital assets, may be justified. Maybe this greed is being influenced by advice from family and friends. But support during this time is crucial — retribution via short-term financial angst can impair other decisions or long-term outcomes.
My role as a CDFA® is to help my clients see financial details in black and white. This entails helping them design an interactive financial plan for their life after the divorce. A visual blueprint helps keep the financial components in perspective and see through the emotional greed. For example, you may desire to keep the primary residence, but can you afford the mortgage and manage the upkeep? Will there be difficulties or challenges in refinancing the mortgage into your name due to income limitations or being upside down on the current mortgage?
Another example may be the preference to keep all or the majority of a large taxable investment account. This may be financially beneficial, but what is the unrealized capital gain exposure, and are the assets in the portfolio marketable? Or if you intend to request alimony, how will it be paid to you? Under current rules a spouse can make full or partial alimony payments via IRA transfers. This may be helpful in the long run to establish a retirement nest egg, but it could penalize you now if you have to draw from the IRA before age 59½.
3. Impatience — It is human nature and unavoidable to have feelings of impatience along with the desire to quickly move through the discomfort of a divorce. But this emotion may motivate you to make decisions to complete the divorce without considering all of the long-term ramifications. This is a time in your life when you need to exercise patience and evaluate all of the potential ramifications of your decisions with your advisors and counselors.
Another reason for this emotion is not fully understanding the divorce process. There are divorce guidelines in every state that need to be met — dividing assets is never a quick task and it comes with its own set of rules. The process is not a sprint, so prepare for the marathon by having your attorney clearly outline the legal steps it takes to complete a divorce. Also have your CDFA® and/or financial advisor walk you through steps to divide assets and explain the pitfalls that may prolong the division.
As mentioned earlier, create a post-divorce financial plan to show how you can accomplish your goals with what may be offered in a settlement. It may be enticing to jump at that first offer, put this all behind you and move on with your new life. But taking the time to reflect on an offer while letting emotions cool can bring clarity to your decision and help avoid unintended negative future consequences.
Making the Journey Easier
I can tell you from personal observation that navigating through a divorce is not a pleasant experience. However, this lengthy journey can be made a little easier by managing these three common emotions that may tempt you to throw in the towel just to eliminate all the pain and frustration. Getting organized heading into the divorce process by establishing a trusted team and building out a post-divorce financial plan will be easier for you to focus on yourself, both physically and mentally. An additional article will follow that will provide more detail on the preparation, planning, and execution of a successful divorce.
Materials discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.