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Tips: Recovering Financially After Divorce
The internet and bookstores around the world are saturated with books on marriage, divorce and the problems of dealing with the financial aftermath when couples decide to go their separate ways. Money problems related to divorce can be the cause of endless emotional and physical problems, even years after the initial separation. With a little common sense, the effects of suddenly seeing your finances dwindle can be minimized.
According to the stats, about a quarter of divorced couples feel better off financially and a quarter feel financially destitute. After my second divorce, almost ten years ago, you could count me in the second half. After paying out half the equity in my home, alimony, and rental accommodation for several months while I waited for the ex to leave home, my bank account dwindled quickly. For those of you that are loaded and feel just peachy, financially, you can probably skip this short article and look for something more relevant to your situation! The rest can follow along with me and hopefully learn from my mistakes and the mistakes of others.
You may have guessed by now that I was not in good shape financially after my separation. But it could have been worse; I could have gone to court and ended up with much less. Although it is probably too late for most of you by the time you read this, I would highly recommend going to a mediator to settle any outstanding disagreements during the divorce. The cards are placed on the table, and unless you are unrealistic and in a state of shock like I was, the outcome is for the most part quite fair. Both parties disclose their assets, debts and expected budgets for the coming years. An agreement is reached somewhere in the middle. Of course, the only downfall to this concept is that you need to get your spouse to agree to the process in the first place. But if you find a good mediator, as we did, the process is smooth and the outcome is acceptable to both parties without all the negative conflict that seems to arise during a lengthy lawyer against lawyer dispute.
So onto some of the mistakes I made and how to avoid making those bad choices!
1) Sell the farm. I didn’t do this initially. I tried to hold on to the family home but soon realized it was too much for me to deal with financially and time-wise. It was not a large place but an older house on two acres of property. The mortgage was negligible but the other expenses were a killer over time. The amount of money necessary for ongoing maintenance for any dwelling adds up over time. Add heating, electricity, taxes and insurance and you soon have a large monthly overhead for one person. If your house is paid for and/or you can manage the bills on your salary, all the power to you.
When the light bulb went on, I moved to a townhouse on a small property with next to no overhead but it was still too large for me. I asked myself why I needed so much space when it was just going to be my myself and possibly one more person. There were rooms that were never used except when my kids visited, which was a rare occurrence since they had both moved away by then. So I finally moved into a two-bedroom apartment. No property, no taxes, minimal heating and electricity bills and more than enough room.
2) Simplify, simplify, simplify. It took me two moves and two yard sales but I finally got rid of most of my stuff. My God, the stuff! Like everybody else I know, I couldn’t use my garage because of the junk. The closets were full of more boxes than I could count, many of which were never opened from one move to the next during the previous few years. Why, I asked myself, do I keep all these things?
I finally made the decision, when I knew I was moving into an apartment, to go crazy and start tossing everything and anything that had not been used or seen for the last few years. Books, toys, clothes, knick-knacks, art (someday I will find a place for that…yeah right), extra dishes, kids’ stuff from years gone by, tools that I would never need again. It never seemed to end. As fast as I could get rid of one box, another would appear.
But what a feeling when it was over. I now had my belongings down to a small storage room and a couple of closets. Ok, I couldn’t throw away the Christmas decorations but did I really need three boxes of tree ornaments that had been collected over the last twenty years? After using one boxful that year, the tree seemed to be sagging with the weight.
And why do people actually rent space to store their “stuff”? If you aren’t using it and can’t see it, why are you keeping it?
3) Digitize your photos. Speaking of taking up space. Thirty years of photos and slides add up. I know, I know…there are those of you out there who want the touchy, feely experience of looking through all those photo albums, especially that nice big heavy embroidery-covered album that you received from your great aunt years ago. But after lugging around a fifty-pound box of photo albums one too many times from place to place, I decided enough was enough. In some cases, smaller is better. It took quite a lot of time and effort but a couple of CDs don’t take up any space and can easily be moved from place to place. My two sons or my ex can have the albums to cart around for the rest of their lives. I can always ask them if I have the sudden desire to feel a paper photo in the future.
4) Get rid of the gas-guzzler. This was the biggest mistake of my life and I am still paying for it in many different ways. Soon after I was separated, and came to the agreement to sell the family Toyota to my former wife as part of the final agreement, I went looking for another car. I was not thinking rationally and ended up buying a used Jeep and paying way more than I should have at the time. I have always been very careful when buying cars by doing my research, checking out the gas mileage, reading consumer reports and finally coming to a sensible decision.
But that time it was different. I was reeling from being dumped after almost twenty years of marriage. I needed to do something to make myself feel better. So without giving it much thought, I went out and bought a Jeep. I remember the day clearly. My son and I went car shopping around all the local lots. He wanted me to buy one of the many cool sports cars we saw. I convinced him that was a bad idea because 1) a newly separated 50 year old in a sports car is just too cliché, even for me and 2) more importantly, there was no place for a ski rack on any of them.
But then I saw a Jeep Cherokee sitting in one of the dealer garages in pieces. It was in excellent condition but the air conditioning was being worked on, as far as I remember. For some reason, it was the car I needed. No logic, no research. This was the car. Thinking I had almost reached a decent agreement with my former wife, and that I would soon have a little extra cash that I could make a large payment with, I signed a deal that was totally out of line for my financial situation at the time. A week later the so-called “agreement” that I had reached with her fell apart as her friends convinced her to see a lawyer. The pay-off money never materialized and I was stuck with a huge monthly payment for the next five years.
Don’t get me wrong; Jeeps are probably good vehicles if you have the money to pay for the gas and the maintenance. I didn’t. What was I thinking? I wasn’t.
If I were doing it all over again, I would have purchased a small used car that consumed gas by the spoonful. They are inexpensive when new, and there are many that are available for a very small output of cash. Both my sons purchased small used cars a few years later for under three thousand dollars and drove them for a few years. Forget status; forget feeling good, just think cheap for awhile until you get back on your feet. When you know where you stand financially, go ahead and spend again if you feel so inclined.
5) Reevaluate your recurring payments. We all get used to a certain comfort level, especially after living with someone for a couple of decades. But do you really need two or three phone lines, all those cable channels, high-speed Internet, a cell phone, and maybe even an extra vehicle with all the accompanying payments? If you shop around and get rid of things you don’t need, you can minimize monthly payments pretty quickly. Just changing my phone line to Voice Over Internet (www.vonage.ca) saved me a ton of money. Today there are many options for internet phone set-ups.
And those damn cell phones. I have to admit it was useful when I first separated to keep in touch with my son who was bouncing back and forth between the two of us. He never knew where I was going to be and liked the idea that he could reach me whenever he needed to.
However, once I was settled again, I had no use for a mobile phone. It seems that wherever you go these days, someone is talking on one of them. Who, I ask, are they all talking to? I was sucked into the marketing frenzy like everyone else but I soon realized that it was at least another $30 or 40 per month for no reason. I hadn’t had a cell phone for forty years, why did I need one now? I didn’t. I got rid of it and didn’t miss it. For twenty-five cents I could always find a pay phone if I had to make an emergency call. Spending a quarter on a call, even if I had to spend fifteen minutes looking for a phone is cheaper than a cell monthly payment. But like lots of other things, we have been convinced that we can’t survive without one.
6) Shop around for the right credit card. Notice I said, THE right credit card. In an ideal world, it would be better to have none of these things in your wallet or purse. But if you must have one, then keep one. You don’t need ten of them. They are way too easy to use, especially when you don’t have a lot of disposable income to begin with. For some reason, the balance increases exponentially before your eyes. But the worst part of being in midlife is that every credit card company out there seems to think you are a great potential customer and continues to try to convince you to get one of their cards. And if you have been a loyal customer for years, your credit limit will continue to be increased. But it can work to your advantage.
If you receive a telemarketing call from one of them, which seemed to happen to me on a regular basis, don’t hang up right away. There will often be an enticement that makes it worthwhile to change cards. I received a call from a competing credit card company that offered me an interest rate of 4% on any outstanding debt I transferred to their card. The rate remained at 4% until it was paid off. There was no expiration date so it was well worth it.
Many also offer 2% introductory rates for the first six months. If you have a lot of outstanding debt you can save a substantial amount of interest payments in six months by changing cards.
7) Make a budget. You have basically started life over with a lot of financial changes. If you write everything down, it is much easier to keep track of what you need to change, or can change, to make life easier. Keep track of everything for a month and see where you can improve.
8) Pretend you are starting at scratch. Because you probably are.
So there are a few quick pointers on starting over financially. Most accountants agree that divorces usually result in a lose/lose situation for both partners, regardless of intentions and planning. It is up to you to plan well enough to compensate for any shortcomings in the financial department.
Think and act like you have half the money you used to…you probably do.