Practical Advice For Navigating The Financial Complexities Of Divorce

Forbes

Regina McCann Hess, a CFDA and CFP, joins ‘Forbes Talks’ to discuss navigating the financial challenges of divorce.  0:00 Introduction 1:07 What Details To Ask About Your Separation 2:29 Typical Financial Challenges In Divorce 6:02 Assets: What Qualifies?  7:33 At What Stage Should An Attorney Be Involved? 10:52 Child Support And Other Things To Note 12:43 What Is Overlooked In Divorce Negotiations? 14:16 Other Education Resources About Divorce 17:21 Post Divorce: Preparing Financially  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Hi everyone, I'm Rosemary Miller here with Regina McCann Hess, a certified divorce financial

00:08 analyst and CFP, here to tell us about practical advice for navigating a divorce.

00:15 Thank you so much for joining me today, Regina.

00:16 Thank you so much for having me.

00:18 It's my pleasure.

00:19 So, Regina, how do you assess a client's financial situation when they're going through a divorce?

00:26 It can be tedious at times.

00:28 So what you do is you look at all the assets that are in the marriage.

00:32 So it's kind of like you have investments and debts and checking accounts and credit

00:41 cards and everything, and you just put it all on the table, kind of like you're making

00:44 a jigsaw puzzle.

00:46 And then once you have all the pieces together, you have to then divide it into two separate

00:52 buckets or two different puzzles, because the two parties are now splitting and they

00:57 have to figure out what asset is going to go to which spouse after the divorce.

01:04 And a lot of times you're looking at these assets and debts included in there, and you're

01:10 trying to decide, especially for me, I'm usually working with the women on their side of the

01:17 divorce.

01:18 I'm trying to decide what's going to work for them after the divorce and going beyond

01:22 that.

01:23 And it's difficult in a lot of times because an asset could look the same on paper, but

01:29 it's not.

01:30 So take for instance, if you have a house that's worth $500,000 and there's no mortgage,

01:37 your asset number is $500,000.

01:40 And then you have an IRA that's also worth $500,000.

01:43 So on paper, the same number, it adds up.

01:46 But if you were to sell the house and if you held it long enough and you didn't have capital

01:51 gains, you get that $500,000.

01:54 But the IRA, if you were to take that money out of the IRA, which sometimes sadly people

01:59 need to, you would have to pay tax on that money.

02:02 And that would be, so if you're in a 22% tax bracket, you're basically netting 78% of that.

02:09 And that's a lot different than the whole 500,000.

02:13 So you have to figure out, yeah, they need the assets, but which assets do they need

02:17 and which ones are going to work harder for them.

02:20 And then sometimes it also is, can they afford to have that asset, like the house, if there

02:24 is a mortgage?

02:25 Can they afford to pay that mortgage or refinance a mortgage in this environment?

02:28 Well, could you provide some examples of financial challenges that you typically see when people

02:34 are going through divorces?

02:36 Yeah.

02:37 So the biggest thing is you're going from, you know, sometimes a two income house, then

02:42 to a one income house.

02:44 And in most cases, you have a big income disparity with between the spouses.

02:49 One spouse makes a lot more, the other spouse makes a lot less.

02:52 There's also still a lot of women who, while they're working in the home, taking care of

02:57 the family, they're not getting paid for that job, right?

03:00 And it is a job, but they're not getting paid for that.

03:03 So there's a one household income that's, you know, taking care of everything.

03:09 And on the other side, that spouse that wasn't in the working world is now trying to figure

03:16 out, okay, well, how do I pay my bills?

03:18 I obviously may need to have to go back to work.

03:22 But I've stepped out of work for 10 years to take care of my family.

03:28 So I was a professional and I had a great job and a great title, but now I have to go

03:33 back in at like entry level to get back into the working world.

03:38 So I don't have the earning power that I did 10 years ago.

03:42 So there's a big disparity right off the bat between you had the one household, now you

03:48 go to two households.

03:50 And again, a lot of times it's the woman where the income is going to be substantially less

03:57 than their counterpart because they have not been in the working world for so long and

04:03 have to start over.

04:04 You know, I hear about that very situation quite often.

04:09 And I'm wondering what advice would you give for a young woman who's just getting married?

04:13 And of course she's not getting married, planning for her divorce.

04:17 Would you suggest that she take the time to go focus on her family or that she stays in

04:23 the workspace?

04:24 Yeah, there's an emotional answer and then there's a financial answer, right?

04:31 So the emotional answer is depending on the woman, she wants to stay home with her children

04:36 and raise her children.

04:37 And in some cases they may not have the choice to make because if they have a special needs

04:41 child it's very difficult, you know, and somebody does need to be there with the child.

04:46 But if it's a financial decision, I talk with a lot of what I call kids.

04:52 They're not kids, they're young adults, but you know, I'm of that generation where I'm

04:56 like, "Oh, they're still kids."

04:57 And I'm like, "Well, wait a minute, they're 32.

04:59 They're not a kid."

05:00 They still do it.

05:02 But I talk to them because they're the children of my clients and they're getting married

05:06 and they're having kids and they're like, "Oh, it's just cheaper for me to stay home

05:10 by the time I get done paying daycare."

05:14 And I explain to them it actually isn't if they can afford the daycare they should because

05:19 if they stayed home to avoid paying daycare, then they're giving up their pay raises, they're

05:24 giving up their titles, their advancements, and five years goes by and they haven't worked

05:29 for five years and they're back at square zero.

05:32 The other thing that they give up during that time, it's like kind of the hidden asset that

05:37 they give up besides just earning money, earning potential, and their titles.

05:42 They're giving up contributions to the retirement plans because while you're working, you're

05:48 contributing to your retirement plan.

05:50 And if you step out of work, you're obviously not able to except to an IRA, but small amounts

05:57 only that you can put to an IRA compared to what you can put into a 401(k) or a 403(b).

06:03 What strategies do you recommend for equitable distribution of assets?

06:07 We're going back to the distribution of assets between the two ex-spouses, I guess.

06:15 Trying to be fair and equitable are two different things.

06:20 When you're going through a divorce, sadly, there's no real fair, but there is equitable.

06:26 In some cases, it might be a 50/50 split.

06:29 And again, that could be determined by what state you live in because they may decide,

06:34 "Hey, everybody in this state, everything's split 50/50."

06:37 I work in Pennsylvania, so it's negotiated between the divorce attorneys or the mediators

06:44 and the couple.

06:46 But sometimes it's a 50/50, sometimes it's 55/45 and 60/40.

06:51 And you'll see the disparity of the different splits based on the income.

07:01 Sometimes that the one spouse may make quadruple what the lower earning spouse makes.

07:07 And then sometimes that higher asset split going towards the wife, we'll just say for

07:14 now, is equitable because they don't have the earning power to survive on the other

07:22 side of divorce without that extra asset split.

07:26 Plus, hopefully some spousal support in the meantime to get them up and running.

07:31 Wow.

07:32 Yeah.

07:33 At what point does someone hire you?

07:36 Once again, I haven't been through a divorce.

07:41 Do people hire you with their attorney?

07:44 Are you necessary with CDFA?

07:48 What stage does someone hire you?

07:50 Well, I mean, not everyone needs someone like me.

07:53 I have had people come to me and say, "Oh, here's my situation.

07:57 Can you help me?"

07:58 And I've said to them, "You really don't need me."

08:00 Maybe you need a divorce coach or go back to your attorney and these are the questions

08:04 I would ask or in your mediation, these are the questions I ask.

08:08 But it really is depending on their financial situation.

08:13 And obviously, the more assets they have, the more complicated it gets.

08:18 And so I have had people come to me in all stages of the divorce.

08:23 They've come to me before they've reached out to an attorney or a mediator.

08:28 They've come to me while they're in the midst of it.

08:30 I've had attorneys call me and say, "Hey, I need you to help my client.

08:34 She needs an advocate."

08:35 And by an advocate, it means I'm using my divorce financial analyst background to help

08:44 figure out the asset split and which assets are going to help her on the other side of

08:50 the divorce.

08:51 Because if you don't really understand what you're getting when you sign that divorce

08:56 agreement, you can't go back and ask for a change once that divorce agreement is signed.

09:04 You have to go understand what you're signing and that's kind of what I help people do.

09:09 Obviously, I help them figure out what assets are going to be better in their pile to help

09:13 them navigate post-divorce life.

09:16 But I also help them understand what those assets are going to do for them and what the

09:22 difference of the asset split and taking this asset versus the other asset is going to help

09:28 them on the other side.

09:30 So how does one budget those?

09:32 Well, not just the assets, but how does one budget their money after a divorce?

09:37 Starting over, really.

09:40 And I've had a couple clients who've done such a great job of this.

09:43 I was actually just talking to a client a couple days ago and then yesterday I was talking

09:48 to another client and we were talking about their budget.

09:53 It's a lot easier now to get a budget app off of your phone because you can have an

09:57 app for everything, right?

09:59 But if you're willing to do the work and really get in the nitty gritty, the budgeting

10:05 is the first thing to do.

10:06 And you can do that while you're still married because you can see what the household bills

10:10 are.

10:11 What's the utilities for this house and how much it really costs around the house, whether

10:15 or not you're going to be in that house or a different property afterwards.

10:19 You can see the general expenses and hopefully you can obviously whittle them down a little

10:24 bit.

10:25 But if you help someone create a budget, and I work with my clients for that, let's create

10:28 a budget where we can stay within your income guidelines.

10:34 And that way you get really, really tight for that first year after divorce because

10:40 you're just still trying to figure things out.

10:42 But it also helps you understand the value of money and what it does for you and how

10:49 it can hurt you if you make some poor choices.

10:53 What are the differences you've seen between the women who still have children that are

10:58 of age where they can receive child support versus those who are not of that age, so they

11:05 really don't see any income?

11:07 Yeah, and that can be difficult too.

11:11 So obviously when you have kids, you need the child support because kids are so expensive.

11:16 And a lot of times child support doesn't even cover the full cost of the kids.

11:20 So one of the things I do talk to my clients about is negotiating.

11:24 You have your child support, right?

11:26 And that's a formula.

11:27 But you also negotiate the additional expenses that you could share.

11:32 Say the sports, the activities, the car, the insurance for the car when they get to that

11:38 age.

11:39 There's a lot of hidden expenses that you don't think about, especially if you're not

11:42 there yet.

11:43 So negotiating that into the agreement as well.

11:46 Okay, we agreed to split these costs, these additional costs, 50/50, whatever the percentage

11:53 is.

11:54 Then when we get to the spouses who the kids are out of the home, if they've been married

12:01 a long time in some states, there's still spousal support depending on which state you're

12:07 in.

12:08 I'm in Pennsylvania and it actually varies county by county.

12:11 I'm in a tri-county area and it depends on what county I am with which rule they're going

12:18 to use.

12:19 In general, we try to think about for how many years you've been married, you potentially

12:28 could get a year of alimony.

12:30 So for every three years of marriage, one year of alimony.

12:35 And that's just a guideline.

12:36 That doesn't mean that's absolutely going to happen, but it's a guideline where we can

12:41 use that for negotiation.

12:42 Well, Regina, in your experience, what are some often overlooked financial aspects that

12:47 individuals should address during divorce negotiations?

12:50 Oh, that is a great question.

12:54 I think, you know, states, most states, I think, do not include college expenses in

13:03 the required part of the negotiations or agreements.

13:08 And as we all know, college is extremely expensive.

13:12 So that, I think, could be part of a negotiation where we just add something into the document

13:17 where each parent could be responsible maybe for 20%, you know, of the child's expenses

13:23 during college.

13:25 And that leaves the child, you know, potentially having to take loans if he or she doesn't

13:31 get grants or scholarships or whatever as well.

13:34 But at least it puts some skin in the game for the parents.

13:37 Some parents would hate me for saying that, but it is a hidden problem that people don't

13:42 think about.

13:43 And it's not enforced by the states in the divorce court, but if you're negotiating

13:48 and you put it into the agreement yourself, it could be something that could help.

13:51 That's a big expense people don't think about.

13:53 And the kids, when they get to driving age, you don't think about a car or the car insurance

13:58 because that's another, I have a new driver in the house.

14:01 The car insurance is expensive.

14:03 How's that going?

14:06 So far, so good.

14:07 It's okay.

14:08 I know my parents, their heart used to skip a beat every time I left home.

14:13 Yeah, I'm like, oh, please.

14:15 Yeah.

14:16 Well, what role does financial education play in empowering clients to make informed decisions

14:21 during the divorce?

14:22 A huge role.

14:24 A lot of the women that I work with, they're smart women.

14:29 I mean, even if they are working, you know, they didn't stay at home, they're in really

14:34 great roles in their jobs, but they've a lot of times have given the financial decisions

14:41 to the other spouse because they're too busy.

14:43 They're working and they're taking care of the kids.

14:45 They're taking care of the house.

14:46 They're taking care of everything.

14:47 And they're a lot of times also taking care of the adult parents, like their parents,

14:51 because you know, there's sometimes illness there.

14:54 So financial decisions are put off to the side and they don't, they just don't have

14:58 another thing to think about.

15:00 So they hand that off.

15:01 So one of the things that I do is I educate my ladies and I always remind them like, hey,

15:06 this is like riding a bike.

15:08 You haven't done it in 10, 20 years, but I can tell you that if we work together and

15:14 I talk to you in non-jargon language, you're going to have a better feel for this.

15:19 And if you work on that budget with me for the next year or so, you're going to be a

15:23 year or two from now doing much, much better and understanding much more of this along

15:30 the way.

15:31 So has being a CDFA, has it changed your views of marriage at all?

15:38 No, because I mean, well, I've been married for, oh gosh, I hope I get this right.

15:44 20, it's 28 years this year, 29 years in June of 24.

15:51 So I've been married for a very long time and it's, you know, knock wood, it has stuck.

15:57 But I have seen some very, very sad cases and some horrible situations and it's really,

16:05 really sad.

16:07 But I do talk to people about getting therapy because one of the biggest things that will

16:15 help someone is if their mental health is better and improved and it also will help

16:22 them avoid making the same mistakes, you know.

16:25 And I'm sure in any marriage there's, you know, there's contention at times and, you

16:31 know, it's not just one person.

16:33 There's two people in there and there's, you know, everybody's putting something into that

16:37 marriage, but there's also problems and it's both of them sometimes.

16:40 And it's, you know, one sided on, in other situations too.

16:43 I would still get married.

16:46 I do recommend like for my younger people, like when they get married to have a sit down

16:52 conversation with both of them, they bring all their assets and debts to the table, kitchen

16:58 table conversation.

17:00 And I think if they have that conversation and have a good foundation with that conversation

17:06 and then agree to have it, you know, every quarter, they're still going to be part of

17:10 the decision making and they're not going to be able to basically check out on that.

17:15 They're going to be involved and maybe, you know, have some ownership and accountability

17:20 in it too.

17:21 Well, is there anything else on your radar about financial planning for a divorce or

17:29 that you would like to put on our radar?

17:32 No, just, you know, when, when you are going into a divorce, there's a couple of things

17:39 that I do recommend people do before they go into that divorce.

17:43 One is to get a credit card in your own name because you want to start building your own

17:47 credit.

17:48 So if you apply for that credit card while you're still married, it's looking at household

17:51 income versus your own income.

17:53 So you can, you know, do that.

17:55 And then once you get the credit card, only put gas on it and then pay it off every month

17:58 because that's going to help build your credit report.

18:01 If you have any health issues or dental procedures, get them, get them taken care of because you

18:05 may not have the same health insurance on the other side of the divorce.

18:11 And spice up your interview wardrobe because you may have to go back to work and you may

18:16 have to interview or you may have to look for a better paying job.

18:19 And also with that, you know, look at your resume and build that up as well.

18:23 Well, thank you so much for joining me today, Regina.

18:26 Thank you for having me.

18:28 Absolutely.

18:29 Okay.

18:31 Thank you for doing this.

18:33 I appreciate it.

18:34 I'm lucky.

18:35 [end]

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