The most common phrase you might hear post-divorce is: "The best revenge is living well." But if you take it too literally, you can destroy your financial future. (When I got divorced, I learned that lesson the hard way.) Here are five common post-divorce mistakes and expert advice on protecting your hard-earned assets right now.
Mistake No. 1: Doing Nothing Long-Term With Alimony
The biggest mistake people make, says Rosemary Frank, a certified/advanced divorce financial analyst and registered investment advisor, is doing nothing with their money: no investing, no saving, no seeking financial advice. They just collect and spend their alimony.
Relieved that the intensity of the divorce process and uncomfortable financial discussions are now over, they're just glad to be done. All too often, she says, people who had previously not been active about managing their money slide back into passive habits. Instead, you must “realize attention to finances is an ongoing necessity,” she says.
Mistake No. 2: Trying to Do It Alone
While it might be hard to ask for help, it’s critical that you gain an understanding of your finances. If you seek out advice, you’ll find financially savvy allies who can help you think long-term, plan for the vacations you want, save for the retirement you’d like to have, and see your own potential, says attorney Lori Lustberg, a certified divorce financial analyst and divorce mediator. If asking for help is new to you, she says: “See a therapist. It’s one of the best investments you can make.”
When it comes to getting financial advice, not anyone will do, warns Julie Murphy Casserly, author of The Emotion Behind Money: Building Wealth From the Inside Out and president of JMC Wealth Management. She has seen her clients — who once turned over their financials to their partners — gravitate toward investment management advisors with similar personality traits as their exes.
Instead, “find your advocate, not your boss,” she says, and avoid rushing into making big decisions until you and your advisor have figured out what you want you new life to look like. Be patient, she says: “For most women this [learning process] is a gray area and usually takes 12 to 18 months.”
Mistake No. 3: Choosing the Family Home Over Alimony
Your home’s equity, no matter how much, may not matter if you took the house in lieu of alimony or retirement, says William Herf, certified financial planner with Ziegler Wealth Management. Unless you fully supported your household, you likely aren’t prepared to pay the mortgage or unexpected maintenance costs on just one income.
If you received the house and settlement cash as well, Herf advises against using that cash to pay off the house. While it might be nice not having the monthly payment, you rob yourself of liquid assets better used for emergencies or other investments. The best course of action? Sell the house, he says, and then reevaluate the finances afterward to find a more realistic house payment (30 percent of your current gross income) to fit your new budget.
Mistake No. 4: Not Saving
People who rely on alimony for support tend not to save, says Herf, especially if saving money was their partner’s responsibility when they were married. But you need to get in the practice of saving. It will give you "a sense of financial freedom,” he says, and account for your future or any emergencies. Aim to put away 10 percent of your income or alimony per month.
Mistake No. 5: Continuing to Spend as You Always Have
If your income changes with a divorce, you can’t keep spending money like you used to. Instead, you need to make a budget based on your new household’s current income (or alimony), and start spending accordingly. That might mean putting an end to certainly lifestyle perks like expensive gym memberships or dining out, or in my case, giving money to my adult children.
Jackie Dishner is a Phoenix-based independent writer and an author with more than 20 years of experience writing for business, consumer, and trade publications.