Sorting out financial matters in a divorce is challenging…period. In the world of divorce finances, we say that one plus one does not equal two- it equals one and a half if you are lucky. Add many more years of financial entanglement and fewer years to recover. With this, the attainment of one and a half is even less likely. Here are just a few reasons that there are additional financial complexities in long-term relationship break-ups.

Retirement Planning and Runway to Recovery is Shortened

• When making a retirement plan divorce is not typically contemplated. The plan is to support one household with a certain lifestyle. Now two people are splitting those retirement dollars, typically 50/50. Each person will need to figure out how to live on half as much with the same fixed costs prior to divorce (e.g. food, clothing, shelter, medical, etc.)
• The closer that both people are to retirement age the more difficult it is to recover the gap from planning as a couple to individuals. If one person doesn’t have a career path that includes retirement savings, it is even more challenging to make up this gap post-separation.
• If a couple has retired and consumes retirement resources as planned, both individuals may be challenged to make up the difference from what the original plan together versus going forward separately.

Untangling Longer History Property Transactions 

• Separate property tracing back to the marriage date is more difficult as the years and the nature of the property change. For example, a house bought prior to marriage sells, the proceeds roll into another property, and ultimately either sell again or re-finance. Then the relationship ends fifteen years later. Financial institutions vary in the length of time that they keep records easily accessible. You can usually call and ask for a manager to request historical records, but it takes time and is not always available.
• For retirement or stock accounts it can be difficult to trace back to beginning balances from the start of a long-term marriage.

One Individual Assumed a Home Management Role, While the Other Person Pursued a Career

• Having a one-income household occurs for different reasons. It might be for the benefit of raising the family, moving around to follow one person’s career opportunities, or simply a lifestyle choice. A longer lifestyle such as this results in a greater disadvantage for the non-career-focused individual. 

Co-Mingled Credit 

• It’s good practice to run a credit report for each individual. This will determine the primary cardholder and provide clarity of each person’s credit position for living independently. Over a longer relationship, it is more likely that one person’s credit took a superior position. This puts that individual in a stronger position to live independently. Having stronger credit is a benefit for renting a place to live, lease a car or refinance anything.
• Income available for support has a different trajectory.
• If retirement is in sight or one of you is close to the age of 65 (which is typically the age a judge will determine as a reasonable retirement age in most places). Then it is anticipated that both parties will have similar retirement incomes. If support is granted it is usually for a limited time (i.e. date of estimated retirement) and both parties live on what they have after that.

Daily Budget and Life Management Skills

• Couples take on roles in a marriage. It is natural. One person might be solely responsible for paying bills, grocery shopping, long-term financial planning, cooking, planning vacations, etc. For the person that didn’t do these tasks, it is harder for them to do these skills when the relationship breaks down.  

Mitigating additional challenges is difficult in hindsight. At the beginning and throughout a relationship, you can do a few things to alleviate the risk of being disadvantaged:

• Upon your marriage date, document your individual assets and debts. Download statements and keep them in a safe place.
• Check-in on your current marital life inventory and your couple goals at regular intervals. You can achieve this by downloading quarterly or annual statements when doing your taxes. An even better approach is to maintain your account statements on a monthly basis.
• At each major financial decision re-document and agree on separate versus joint property. Re-documenting is especially important if one or both you brought separate property to the marriage.
• Maintain and use your own credit so you don’t lose your individual credit history.
• If you are going to take a lesser position in your ability to pursue your career, discuss creative ways to make up for that deficit. A postnuptial agreement is beneficial in this scenario. Just make sure to document it.
• Share duties that involve core life skills. Agree on a cooking schedule, swap paying the household bills every year or two, grocery shop together, and/or sit down with your financial planner together every year.

Overall, communicate, be curious, and be involved. Do not give up having the pulse on the core things you need to understand to survive.

Guest author: Heather Steer, Split.fyi