For Divorcing Women, Becoming Financially Knowledgeable Is Crucial

As divorce rates increase among older people, understanding your full financial picture is critical

A December 2014 story from The New York Times concluded that the divorce rate in the United States has fallen off. Justin Wolfers, a University of Michigan economist, wrote that the divorce rate peaked in 1981 at 5.3 divorces per 1,000 people. It’s steadily fallen to 3.4 divorces per thousand in 2012 (although that excludes data for California, Georgia, Hawaii, Indiana, Louisiana and Minnesota), the latest data available from the Centers for Disease Control and Prevention and the NCHS National Vital Statistics System.

Wolfers noted, though, that the marriage rate has also fallen over the same period. If fewer people are getting married, naturally, fewer people are getting divorced.

“But even measuring divorces relative to the population that could plausibly get divorced—the number of people who are married—shows that divorce peaked in 1979, and has fallen by about 24% since,” Wolfers wrote.

A more recent trend is that of women becoming the primary earners in their households. However, many of those higher-income women are still leaving financial decision making to their husbands or partners. A 2012 Prudential study found 22% of married and partnered women earn more than their partner, but only 19% make most of the financial decisions. A UBS survey in 2014 found that while some decisions are shared—real estate and large purchases, estate planning and college planning—investing is largely the man’s domain in most couples.

That means women who are divorcing need to be proactive in improving their investing skills and financial literacy.

“I still find that women, even if they are the primary breadwinner, their financial knowledge in terms of their own assets and income and so forth, they’re not as knowledgeable as they should be,” Leslie Thompson, managing principal and co-founder of Spectrum Management Group, told ThinkAdvisor on Tuesday. Thompson is a certified divorce financial analyst.

“When going through a divorce, whether you’re the primary earner or not, it’s really important that both parties really but the woman especially has a great handle on all levels of finance, especially if she’s delegated it to her spouse,” Thompson added.  

Before she even hires a divorce attorney, a woman needs to get a deep understanding of all of her assets, her sources of income, retirement plan and credit situation, Thompson said. She should also consider adding a tax planner or CDFA to her team.

“Often attorneys, while they certainly understand the legal aspects of divorce, from a tax [standpoint] they don’t really pay a lot of attention to the ramifications of splitting the assets. Having a knowledgeable CPA or a certified divorce financial analyst is helpful,” she said.

While data shows the divorce rate overall is falling, some studies have shown that for older Americans, it’s actually increasing. Between 1990 and 2012, the number of divorces among people between 55 and 64 more than doubled, according to a study by Susan Brown, I-Fen Lin and Krista Payne of Bowling Green State University. For those 65 and older, the risk of divorce tripled in that time period.

The report found that women are more likely to initiate divorce for every age group over 35.

Thompson attributed the increasing divorce among older women on changes in lifestyle. “Typically your children are on their own or out of their house. Your life looks and feels different than it did when you were consumed with children’s activities,” she said. After their children are independent, “people take a step back and maybe realize that either one, they were continuing to stay married to keep their family intact or two, perhaps their interests really differ and it’s taken time to reassess their situation.”

The danger in divorcing at a later age is that you’re that much closer to retirement. If their ability to save for retirement “wasn’t that great to begin with—or maybe it was fine to begin with but when you separate assets in two, things look different—people may not have sufficient assets to accomplish their goals,” Thompson said.

She added, “Even if they’re educated on what their balance sheet looks like, most people really don’t know what it takes to make their life work financially post-divorce all the way through retirement.”

One of the challenges for advisors is getting clients “during that emotional time really focused on what it is they have, what do they need immediately, and what is it they need long term.”

Another challenge is helping them separate emotions from certain types of assets, like the house. “Women in particular can be more emotional about keeping the house or certain types of investment accounts,” Thompson said. “It’s important to take a step back and think about what they need and look at each asset in terms of helping them determine how that particular asset is going to help them accomplish their long-term goals. Is the house going to help them become financially independent and cash-flow independent over their lifetime? If the answer is no, perhaps it makes that decision that much easier to not tie your divorce to any particular asset.”

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