"Fail to Plan. Plan to Fail."
Does this apply to our money and divorce as well? After 20 years as a financial advisor, watching the market implode and explode, does it make sense to add "Divorce Financial Planning" to our agenda"? When we do our personal financial planning we consider retirement, medical, education etc but we certainly do not consider divorce, and if we do, we do not talk about it.
When we set our goals and determine how much we are going to invest and into what, one of the main areas we have to consider is the amount of risk we want to take. We know--or at least in the past this has held reasonably true--that if we take more risk, then perhaps we have a higher corresponding upside, and of course the opposite is true in that we have a potentially lower downside.
When we look at the risk we are prepared to take, we consider our lifestyle, our job security, our wealth, our children and our goals. We do not usually add divorce to that list. The reality, however, is that if upwards of 50 percent of couples are getting divorced, then perhaps this financial risk needs to be addressed when doing our financial planning. In hindsight those getting divorced often articulate that they would have made different financial decisions if they had known that they were going to be divorced. This does not mean that you have to put your money under a mattress or start socking money away behind your partners back, but it does seem to be prudent to at least contemplate what might happen if you were alone. For example, tying up too much money into non-liquid assets or buying into a private investment with a very long-term horizon may cause a lot of extra financial stress if there is a breakup and you can not access the cash.
One of the largest issues in divorce is the matrimonial home. While we often do not think of this as an investment, it really is. Some believe that there is a huge buying opportunity in the housing market right now and that may lead some couples to over-extend financially. That might work if the long-term hold plan pans out, but if there is a divorce in the fork in the road, then this strategy could lead to financial destruction and lots of stress. This does not mean that we have to become total marriage pessimists but it does mean we need to do to some prudent consideration when doing our financial planning.
If divorcing, the best position to be in is one where things are reasonably liquid. This allows for flexibility, more security and more options. Many times the ability to have a clean break is not possible because you are so tied up with assets that cannot be turned into cash leaving you tied at the hip way into the future.