By: Amy Fontinelle | MassMutual.com
Women often fare worse financially after a divorce than men do for several reasons.
In heterosexual marriages where both the man and woman are employed, the man out earns the woman 77.8 percent of the time, according to the Bureau of Labor Statistics. This means that post-divorce, many women lose more than half of the household income they had when they were married.
Further complicating things, women are often the primary caretakers for their children and sometimes for their aging parents, and they take time off work to handle these responsibilities. They may not have advanced as far in their careers as their spouses who didn’t take time off. If the divorce is the precipitating event that sends them back to work, they not only have to deal with the bias against resume gaps to get hired, they also will likely have to work for less than their exes because they don’t have as many years of experience. After an extended absence from the job market, female caretakers might first have to learn new job skills or even embark on a new career altogether. And their lifetime earnings, and therefore their retirement savings and future Social Security benefits, will be lower as a result.
Emotional factors can hurt women financially in a divorce, too. These factors include the desire to get it over with as quickly as possible, wanting a clean break from an ex-spouse, feeling guilty over the failed marriage, not negotiating as intensely as their ex-husbands, and trusting exes to make good on their promises once the divorce is finalized.
Given these additional hurdles to recovering from divorce that men don’t necessarily face, here are some tips on how women can take a proactive approach to making sure they’ll be financially stable moving forward.
It’s tempting to pursue a do-it-yourself divorce to save money on attorney’s fees, to avoid going to court, and to get the ordeal over with as quickly and painlessly as possible. A nationwide survey of divorce attorney’s fees by Nolo, a major publisher of do-it-yourself legal guides, found that the typical divorce attorney’s fee was $270 per hour, and the attorney’s fees for the divorce totaled an average of $12,900. In divorce cases that went to trial, attorney’s fees totaled an average of $20,400. Nolo’s survey also found that the average divorce took 12 months for cases that did not go to trial and 18 months for those that did.3 By contrast, Nolo’s research found that completing the divorce paperwork yourself through an online service typically costs just $175 to $700.4
Attorney Emily Doscow, writing for Nolo, said DIY divorce may make sense if you and your spouse agree on how to divide up all assets, if you’re confident that your spouse hasn’t hidden any assets from you, and if you agree on child custody, child support, and spousal support issues. 5
Once things get more complicated, professional help can result in a better outcome. If an attorney’s fees are out of the question, Doscow suggested saving money by hiring a divorce mediator to help you and your spouse reach an agreement.6 (Related: Alternatives to divorce)
If you think your spouse may be hiding assets from you, consider hiring a forensic accountant to track everything down so you get everything you’re entitled to in the divorce.
During the divorce, women should start with a checklist outlining their financial priorities, property priorities, and priorities for their children to help in the negotiation process and to minimize post-divorce stress, said certified divorce financial analyst and investment advisor representative Michael Briggs of Horizon Investment Management in East Longmeadow, Massachusetts.
“Both parties lose financially in a divorce, but the best way to adjust to that is to create a budget and stick to it. Make sure you do the budget before the divorce is final because you only get one chance at a property settlement,” Briggs said.
Since women often get custody of the children and ownership of the house in the divorce, they need to budget for household maintenance and child care. It’s important to understand how much these things cost so they can negotiate enough money to pay for them in the settlement.
Don't forget your children's activities, Briggs said. Dance, hockey, and horseback riding are expensive, and you need to budget for them properly so your money doesn’t run out and your kids don’t have to stop participating.
One of the most important factors in saving for retirement is time. The later in life you get started, the less time you have to invest and benefit from compound interest. Sock away $500 a month from the time you’re 22 until you’re 65 and you’ll end up with more than $2.2 million before taxes and inflation if your average annual returns are 8 percent. Start when you’re 42 and you’ll end up with about $400,000 under the same conditions. (Related: The role of life insurance in divorces)
While retirement might seem like a less pressing concern in the aftermath of a divorce than where you’re going to live or who will take care of the kids, making sure you get your fair share of the retirement assets in the divorce settlement will really pay off later. It may be worth conceding other assets, such as the house, to keep your retirement plans on track. And whatever retirement assets you receive, don’t be tempted to cash them out and use them for current expenses.
Making a list of specific, attainable goals will help you get moving in the right direction after your divorce.
If you’re starting over with little to nothing, one of your first financial goals should be to create an emergency fund. It will help you handle unexpected expenses without going into debt. (Related: Building your financial pyramid )
Prioritize saving for retirement over saving for your children to attend college. They can get financial aid and loans; you can’t. Contribute whatever you can to your retirement savings, even if it’s only $25. It keeps you in the habit and you can easily increase your contributions later as you get your feet back under you. Maybe one day you’ll remarry someone who has planned well for their retirement, but for the time being, you must rely fully on yourself to fund your retirement.
If your ex handled the saving and investing, be assured that the basics aren’t that difficult; you can learn them yourself by reading a few good investing books. But if you aren’t confident in your abilities, there are financial professionals you can consult.
Divorce is difficult for both women and men, financially and emotionally; proper financial planning during and after the process can make it easier to move on.