A Post-Divorce Mistake: Not Planning for Support Payment Changes

One of the biggest mistakes in the post-divorce life stage is recipients of child and/or spousal support not planning for the eventual ending of these payments or doing any contingency planning for payments going down unexpectedly. This lack of planning can result in financial ruin.

How do people let this happen?

• People simply procrastinate getting back into the workforce or delay getting the training they need to pursue a job that will replace the support that will eventually go away.
• People do not like to think about the what-ifs because they are too emotionally charged. What would the impact on you, your children and your finances be IF:
  • The payor loses his/her job?
  • The payor gets sick or disabled?
  • The payor dies suddenly?
  • The payor decides to retire?

What are some resources that can prevent this mistake or at least educate a person about the risks of not planning?

Work with a financial planner

•  Financial planners look at your cash flow planning, retirement planning, college planning, investing, and more. They also look at the risk management around all of this.

• They can help you plan out what your financial life will look like as support payments come to an end.

• They can talk you through what-if scenarios of the risk of payments changing or going away altogether. Do you have enough savings to manage the risk of any of these scenarios happening?

Contemplate the what-ifs in your marital settlement agreement negotiations

• Life Insurance: The payee can ask that a life insurance policy with him/her as the designated beneficiary be maintained. (As a side note: I recommend the payor asking as well when there are minor children because their life will be significantly impacted if their co-parent passes away suddenly, and they are managing the grief of the children as well as full-time custody.)

• Disability Insurance: Ask the payor to maintain a policy to protect his/her income in the case of disability.

• Understand triggers for modification of payments: What are your state laws around modifying child or spousal support? Typically, these laws are not the same. In your case can you and does it make sense to negotiate non-modifiable support?

• Work with a career coach
  • If training is required to get back into the workforce, understand the following:
    • What training do you need to be a candidate in what best suits you?
    • How long it will take to do the training needed to get back into the workforce?
    • What is the starting wage after training is complete?
    • What is the financial growth path of this career path?
  • If you are already working, a career coach can help you with the following:
    • What development do you need to get promoted?
    • Can your skills be used in a different position that makes more money?
    • Are you being paid the right amount based on your skill set?
    • Crafting the discussion around asking for a raise or promotion.
    • Looking for different job opportunities that may be more financially beneficial and satisfying to you as an individual.

Please avoid this costly mistake of overreliance on support payments and not planning and taking ownership of your future.

Note: There is a related discussion in another Financial Tips post, “Should I Go Back Into the Workforce During My Divorce?”