Tuesday, Nov 5, 2019 • 31min
Divorce, In Dollars and Sense
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Going through a divorce is hard on many levels, but the financial part can be easier if you follow the steps outlined in today’s episode. Yes, it's easier to bury your head in the sand. But if you ignore your feelings or your finances for too long, you'll pay for it. In the case of your finances, literally. Consider this a roadmap for protecting your bottom line.
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Talking about
Speakers
(2)
Samantha Barry
Meredith Stoddard
Transcript
Verified
Break
Samantha Barry
00:14
She Makes Money Moves is a production of
Glamour
and iHeart Radio.Share
00:18
My first thought was: "Wow, I'm a single mom and I don't have a job now, what am I going to do?"
Share
Samantha Barry
00:29
I'm
Samantha Barry
, the editor in chief of Glamour
and this is She Makes Money Moves.Share
00:40
If you turn on the TV or binge watch anything on Netflix, divorce is everywhere.
Don
and Betty Draper
called it quits on Mad Men
, Big left Natasha to eventually marry Carrie, and I've lost count of the divorce is on the Real Housewives
series.Share
00:58
In real life, divorce is on the decline, but I bet you know several people - your parents, a former roommate, a coworker who's gotten divorced - and still, standing by a friend when her marriage falls apart doesn't make it any easier when your own marriage ends.
Share
01:18
A divorce can turn your world upside down, both emotionally and financially, especially if you share children. Today's guest had just returned to work after maternity leave when she and her husband decided to separate.
Share
01:34
You know there's a lot of little things that, you know, couples argue about and nitpick about. It wasn't, you know, one specific thing we did. Like, definitely money was something we talked about, but it wasn't the cause of the end of our marriage.
Share
Samantha Barry
01:49
This is her story.
Share
01:52
My name is Melvine Ake Allen, and I am 38 years old, and I live in
Brampton, Ontario,
which is about 30 minutes outside of Toronto
.Share
Samantha Barry
02:02
When Melvine and her husband were first married, there was plenty of money between them.
Share
02:07
We had two incomes and, you know, not a lot of responsibility. We had a home but there was a lot of disposable income and we had a lot of vacations, you know, treated family to different things, we had a lot of you know fun with money. We definitely were mindful of what we were spending but it wasn't a burden. It wasn't stressful.
Share
Samantha Barry
02:25
When Melvine got pregnant a few years into their marriage, she knew her income would drop drastically while she was on maternity leave. Unlike the
United States
, Canada
guarantees paid maternity leave through a program called Employment Insurance, or EI.Share
02:43
Under EI, Melvine planned to take a year off, and she would be paid about 45% of her $65,000 annual salary. To women In
the United States
who aren't guaranteed a single day of paid maternity leave, almost $30,000 over 52 weeks might sound like a dream. But for Melvine, going a year without more than half of her salary, made her nervous.Share
03:10
Preparing for a little baby to come, definitely our mindset with money changed. We were still saving but I was definitely starting to get a little bit stressed out, because there was less of it on my end. My husband definitely was the breadwinner and had the lion's share of responsibility because of that.
Share
Samantha Barry
03:28
In the Spring of 2015 their daughter was born and Melvine settled into maternity leave.
Share
03:34
I had to adjust my spending because it was less than I was used to receiving.
Share
Samantha Barry
03:40
Even though she was bringing in less money, the couple decided they could afford to sell their home and buy a new one while Melvine was on maternity leave. So, in addition to a new baby who needed diapers and clothes and a million other little things, they also had the added expenses that often come with a new house.
Share
04:00
Our new home was an older home. So, you know, roof had to be redone.
Share
Samantha Barry
04:04
By that point, Melvine had paid off her student loan debt, but she had around $6,000 of lingering credit card debt that she had brought into the marriage. She was trying to wipe that out by paying more than the minimum every month.
Share
04:19
I've always been very careful with credit because I don't want to get into a situation where it's outrageous and I'm just playing catch up, I'm not really making a dent. You know, I've heard it a lot from different people where they've wound up with 30,000 in credit card debt.
Share
Samantha Barry
04:36
Melvine didn't want her credit card debt to spiral, but she needed to put away part of each paycheck to pay for their daughter's daycare once she went back to work. When that time came, in the summer of 2014, Melvine's financial situation wasn't great.
Share
04:53
It was scary in that I've been getting 45% of my paycheck the last year I'm, and going back to work not really having a buffer, I do have credit card debt.
Share
Samantha Barry
05:03
And then a few weeks after she returned to work, Melvine and her husband decided that their marriage wasn't working.
Share
05:11
And now we're separating and we're talking about selling our home and I have to go find somewhere to rent. What are the financial applications on me now, and of course childcare and raising a child? So I was stressed trying to figure out how that would work.
Share
Samantha Barry
05:27
They put their new house on the market and decided that Melvine would use some of the money in their joint account to pay for a rental where she and her daughter would live.
Share
05:37
The focus was providing for myself and my daughter, and my bills that I'm taking on by myself. Now I'm paying rent. I'm commuting every day, I've got childcare.
Share
Samantha Barry
05:49
Melvine and her ex weren't legally divorced but they worked out an informal child support agreement. That money helped, but things were still touch and go financially, so she took extra steps to lower her monthly expenses.
Share
06:04
You know I did things like, I think it was my car insurance, and made adjustments where I could, you know, is there a smaller plan that I can get that still gives me, you know, decent coverage? I tried to get my interest rate reduced on my credit card. So where I could pull back, I did. You know, tried to work from home when I could so I wasn't commuting as much, just to kind of keep a little bit extra, you know, within, in my pockets.
Share
Samantha Barry
06:31
She never missed a bill payment but she didn't pay all of her bills on time. While Melvine was struggling to regain her balance financially, her ex was laid off. So the child support payments which weren't legally mandated came more sporadically. But still, by December of 2015, when their house was sold and she was better adjusted to her single income reality, Melvine was able to buy a house. She and her daughter were settling into their new life. But a few months later, Melvine was laid off.
Share
07:05
Getting laid off was a surprise to me. I had been with the company it was almost 10 years and my first thought was: "Wow, I'm a single mom and I don't have a job now. What am I going to do? What am I going to do now?"
Share
07:17
I'm really stressing, I've been trying to make ends meet as best I can. I haven't missed any payments, I haven't been been delinquent on anything but what is that going to look like now that I don't have a job?
Share
Samantha Barry
07:32
After negotiating with her former employer, Melvine got around $20,000 in severance. But she knew it wouldn't last forever. She started looking right away for her next job.
Share
07:46
Once I was laid off, I was focused on finding a new job, so I kept my daughter in daycare. So that she was, you know, taken care of in the day and I could focus on redoing my resume and you know, applying and going to interviews and things. So I jumped right back into the job search game once I was let go
Share
Samantha Barry
08:05
She was also quick to cut back on her spending.
Share
08:09
I was very, very mindful of what I was spending. I definitely pulled back on a lot of things. There was no eating out. We weren't going to my, we weren't going to movies or anything like that. I was really trying to save as much as possible because I wasn't sure when my next full paycheck was gonna come and I didn't want to be in a situation where I didn't have anything.
Share
Samantha Barry
08:31
Though she didn't regret the end of her marriage, she knew life would have been easier financially if the family lived under one roof.
Share
08:39
Being a single mom, it's harder just to do that on my own. And just having that, I guess, emotional support as well for in the same space would have been different versus being, you know, alone and having to deal with that.
Share
08:54
We're basically supporting two separate households. Supporting one household would have been a lot easier for both of us. It's always better when you're with someone to pull those resources and grow financially together.
Share
09:07
I think it's a lot quicker. That pot grows a lot quicker when you're, you know, putting into it together versus separately and supporting separate households.
Share
09:17
More on She Makes Money Moves right after this quick break.
Share
Break
Samantha Barry
09:46
I'm
Samantha Barry
, welcome back to She Makes Money Moves.Share
09:51
Melvine's job search wasn't going well.
Share
09:54
So I was laid off in March. So when I was at about, let's say, August, September, that was when I was down $3,000 approximately left in my account. That was when I started to really stress because I've gotten a lot of interviews, I've done a lot of second interviews.
Share
10:12
So I was definitely feeling the stress as I got to the end of the summer knowing that I'm not really sure how I'm going to make it to the end of the year, because there's nothing substantial coming in.
Share
Samantha Barry
10:24
Her severance was enough to cover her scaled back lifestyle for now, but she didn't want it to run out. So she had used her credit cards when unexpected expenses came up.
Share
10:35
I did use credit card for certain things just to kind of bridge the gap where I see I'm trying to plan month to month, this is my total monthly expense, oh this is unexpected. My car broke down or, you know, I need to change the brake pads on my car.
Share
10:51
This is really going to mess up the plan that I have for my severance. Let me put some of that on my credit card. It was mostly, I guess, unexpected things that came up where I needed to kind of bridge that, where I rely on my credit card.
Share
Samantha Barry
11:04
At that point selling her home started to feel like the only option. Before she started the process of selling her house, though, Melvine finally had some good luck. That October, with $3,000 left in the bank, she was offered a job.
Share
11:20
She was thrilled, but she wasn't out of the woods financially. The first hurdle? Her new job issued paychecks once a month. So it would be weeks before any money came in. But the job was the first step in the right direction. In 2018, she reached for her credit cards once more to fund a side business: pampered post, a self-care subscription boxes for moms.
Share
11:46
A year and a half later the business is making money, but Melvine hasn't broken even yet. Today, she'd like tips for paying off that existing debt and growing her business without adding more debt.
Share
11:60
What's good debt? People say, I know, when I got my first credit card when I was about I think 18 or something, 17 or 18, it was the first week of university and there was a desk set up in like the common area and they were signing up kids for credit cards and just understanding, how do I manage that? Do I just pay the minimum? Do I pay more than the minimum? How long do I want to balance this debt? How do I manage this with everything else?
Share
Samantha Barry
12:25
Speaking of finances, though they've been separated for years, Melvine and her ex never officially divorced. They're still legally married. Which means they're still bound financially too.
Share
12:38
I mean, everything we do is separate. We have an okay relationship when it comes to our daughter. It's not mean and nasty, it's nothing bad. So there hasn't been a rush to kind of finalize that as yet. You know, I don't know when that will happen.
Share
Samantha Barry
13:02
Melvine is ready to start the next chapter of her life. But first she needs to deal with the past to help sort through everything we brought in an expert with two decades of personal finance experience.
Share
Meredith Stoddard
13:17
Hi, I'm Meredith Stoddard. I work at Fidelity Investments as the life events experience lead. I've spent the last 20 years helping people with all aspects of their financial lives.
Share
Samantha Barry
13:26
So Meredith, there's a lot going on there. One of my biggest concerns for Melvine is that she and her ex haven't actually got divorced yet.
Share
Meredith Stoddard
13:34
That's one of those situations that it's fine until it's not. And you don't know when the point at which it becomes not is going to come. So whenever you're still legally married, you end up having a financial obligation for not only the debt but the assets, like your home, money, etcetera.
Share
13:51
It might be working for now, but down the road when one of you starts dating, one of you remarries, it gets a lot more complicated. And it's usually prudent to make sure that you've got the legal documentation to support the situation that you're really in.
Share
Samantha Barry
14:04
Could a prenup have helped here?
Share
Meredith Stoddard
14:06
Yeah, I think for a prenup, that's one of those things that's smart on paper, but very few people are going to really do it. It's very hard to enter our relationship and get right into that. Well, by the way, if this doesn't work out, here's what we should do. However, communication is going to be really important.
Share
14:20
So as she thinks about potentially someday getting into a new relationship, she's going to be want to be clear with not only her soon to be ex about what their agreement is, what their arrangement is, but with any future partners, because if they end up having children together, it gets a lot more complicated if you're not clear on the same page with expectations.
Share
Samantha Barry
14:38
Right, it's easy advice to give but hard advice to follow. Since Melvine can't go back in time to sign a prenup and she doesn't have anything protecting her legally, should she be making getting a divorce her priority?
Share
Meredith Stoddard
14:51
They seem to have an arrangement that's working for them for now. But the reality is is that you don't know when the bumps in the road are going to come, and if you don't have things documented, then you're going to be in a much tougher spot. And so separating your lives, not only logistically but financially and tactically in a legal way is going to be really important for her.
Share
Samantha Barry
15:11
And what are the risks of her staying legally married?
Share
Meredith Stoddard
15:14
You don't know what you don't know. And so if he gets into financial trouble, they've had different jobs situations. You never know if he has a car loan, you don't want that to become her responsibility at some point.
Share
15:25
If one of them, I think she already bought another property, but if he wants to buy another property, how does that work? If one of them dies? Does she want all of her assets going to him? And legally, that's what's going to happen the way it's set up today.
Share
Samantha Barry
15:38
What are the first steps she should be thinking about?
Share
Meredith Stoddard
15:40
This is one of the perfect example of when you don't want to make perfection be the enemy of progress, and so just taking small steps, even if it's documenting their custody arrangement, documenting what they've agreed on on splitting expenses, documenting that her house is truly her house and starting to take that path.
Share
15:58
One of the figuratively easier things for people to do is at least get an inventory of what does she own, what does he own, and make sure that you lay it all out. Because sometimes you can forget different expenses that you might have or what happens when the child needs braces or special support at school, etcetera.
Share
16:13
And so I would start with an inventory, then document the things that they're doing today, and then you're in a much better position to start to think about the future.
Share
Samantha Barry
16:21
She's concerned about her own debt, but right now her priority needs to be untangling herself financially from her ex.
Share
Meredith Stoddard
16:28
Yes. Because you just can't control another person. Especially when you are exes, you want to protect yourself first. It's the best way that she can make sure that, for her child, they're setting up the future in a way that's gonna work for all of them.
Share
Samantha Barry
16:40
Right. So, Melvine and her ex have been separated for a few years. For our listeners who are newly separated or divorced or for somebody who's thinking about leaving there partner, how does a person start to rebuild financially after that? What are the things they need to be conscious of? What are the hardest challenges ahead?
Share
Meredith Stoddard
17:00
I think one of the hardest things is sort of accepting that this is your new normal and starting over again. 65% of women have a drop in standard of living after their divorce, and so it feels hard to let go of that big house even if financially it might be the right move for you. But in general, start where you are and take steps in the right direction.
Share
17:20
So for her, I think it's going to be taking some small steps around the credit card debt. Some of it is that the math answer is not always the same as the psychological answer. So, an emergency fund is something that could help her with those small expenses, even though the correct math answer is to pay down those debts more as soon as possible. So having a little bit of a safety net there is going to be important and tackling that debt.
Share
Samantha Barry
17:42
So she said prioritized building an emergency fund over paying off her credit card debt for now. Are there any tricks to paying off credit card debt faster? She could definitely ask her credit card companies to lower the interest rate or should she look at a new card that will give her a better rate?
Share
Meredith Stoddard
18:00
It never hurts to shop around, you don't know unless you ask. So as long as her credit is reasonably good, and it seems like it might be, it is worth your time to save a few points of interest to shop around and figure that out.
Share
Samantha Barry
18:11
That conversation has come up over and over and over again. You just can't bury your head in the sand. Look, if you're struggling financially, you have to call the credit card companies, your utilities, your mortgage providers. If you do tell them about your situation, they might be able to help you through the transition.
Share
Meredith Stoddard
18:29
Those are examples of things where taking half an hour could save you hundreds or thousands of dollars. Your time is valuable, but that is time well spent.
Share
Samantha Barry
18:39
Exactly. Melvine also mentioned her business. She used credit cards to start the business. We can't change that, but I don't want her taking on more debt to grow her business. What else can she do?
Share
Meredith Stoddard
18:51
It's tough to say in a vacuum, but there are definitely small business associations, there are often local Shambers of Commerce. There's different organizations that are worth talking to to figure out what the options are in her area. They're sometimes nonprofits that will help out small business owners.
Share
19:06
So it is yet another to do for her, which I know can seem daunting, but over the long term credit cards are going to be tough to keep the ups and downs of a business going, if that's our only option to get extra cash when she needs it.
Share
Samantha Barry
19:20
More on She Makes Money Moves right after this quick break.
Share
19:25
I'm
Samantha Barry
. Welcome back to. She Makes Money Moves.Share
19:29
So we talked about Melvine building up her emergency fund. For women who are married, Do they need to have a family fallback fund and then a separate "what if I'm single fallback fund"?
Share
Meredith Stoddard
19:39
It is always prudent to have something in your own name. Nobody enters a marriage expecting to get divorced. However, as a lot of grandmothers will say, a man is not a financial plan.
Share
19:50
And so you just want to make sure that you set, your take care of yourself and protect yourself first. And it's not because you're afraid of getting a divorce, it's around taking control of your own life, your own money, making your own decisions and not just fully delegating that to somebody else.
Share
Samantha Barry
20:04
What's the one thing you want a woman going through a separation or divorce to know?
Share
Meredith Stoddard
20:09
I think it's hard to accept the next chapter sometimes, even if you both know in your hearts, it's not the right relationship and it's not working and it's time to move on. Just pulling that trigger can be really daunting.
Share
20:22
The average person who gets divorced thinks about it for two years before they pull the trigger, and 70% of divorces are initiated by women. I know for myself when I got divorced, one of the hardest bridges to cross was saying the D-word. It just felt like this utter failure.
Share
20:38
How do you let go of the, what could have been, what was, what I thought my life was going to be is now gone? And so, letting go of that and being able to accept, you know, here's where I am now, and start to envision what do you want your life to be and take a small bite-sized chunks to get there.
Share
20:56
And for most people who go through this, it can feel daunting, there's a cue, when you're in hell, just keep walking. Just keep going, because the only way to get out of hell is to get to the other side, and on the other side can be a life you never imagined. I had a good friend who said to me "It is the price that you pay to have the rest of your life back".
Share
21:15
All of those steps are hard and challenging and daunting, but it is worth it if you do the work to get your financial life, your emotional life set up and make it your own.
Share
Samantha Barry
21:24
Where should these women be going for that help? Who should they be reaching out to?
Share
Meredith Stoddard
21:27
I think there's two things that jump to mind. One, is it's really important that you start to talk to friends and family and people who you trust, who can help you emotionally through this process.
Share
21:35
And two, Fidelity as a life events experience lead, what we've been trying to do is build out a lot of content, curated resources and support to help you through, like, what do I expect? What does it mean to file for divorce? Should I use a mediator? Should I use an attorney? What are the next steps? How does this really work?
Share
21:52
And so in October of this year we're going to be launching an upgraded divorce experience on fidelity. com under the planning and guidance section, which is meant to help people at whatever phase they're in to understand how do I take those small steps in order to start to build the life that I want.
Share
Samantha Barry
22:06
Getting a divorce is probably expensive, right?
Share
Meredith Stoddard
22:10
It's not a pretty number. The numbers for divorce average in the us is over $10,000 and the average legal fee is $250. That is one thing that I think is important to note, is a lot of women, particularly if your stay at home parent, a lot of women think "Well, I can't afford that, so I'm stuck'.
Share
22:25
And I think it's really important to remember that the assets of the household are household assets. Just because they're not in your name does not mean that you Don't have any right to them. You have to find the right balance, know yourself, know your soon-to-be ex and whether you can really work through it amicably and try to do as much of it yourself as possible.
Share
22:43
Whether a mediator is the right thing for you or whether you're going to need an attorney to protect yourself because they're not going to handle the situation well. So it's a very personal decision, but we do give you a lot of things to consider along that journey.
Share
Samantha Barry
22:54
Aside from divorce. What are some other life events that people aren't prepared for financially?
Share
Meredith Stoddard
22:60
Interestingly, aging and caregiving is huge, because it takes women out of the workforce disproportionately over men. Two-thirds of caregiving for aging people are female and 93% for children are female. And so that is a massive financial impact on people.
Share
23:14
Injury and illness is another big one. College, with the college debt situation in the
US
anyway, it's definitely something that is on people's minds, whether it's for themselves or for their children. So those are some of the major ones that we're focused on right now.Share
Samantha Barry
23:27
We did a series on
Glamour
actually, about millennial divorce. Divorce is hard at any age, but for millennials, divorce is coming with lots of different complications. Are you seeing a lot more young people divorce?Share
Meredith Stoddard
23:39
What's interesting is baby boomer divorces are the highest they've ever been, and there's a huge trend upward there. I think the millennials are learning from what their parents had done and they realize "I don't want to wait till I'm 50 or 60 years old and spend the next 20 years living a life that's not really right for me".
Share
23:56
So those who are realizing that they're in a relationship that's not working for them are taking steps sooner in order to extract themselves from it, and get themselves in a spot that they want to be in for the next few decades.
Share
Samantha Barry
24:07
A divorce is obviously the end of your marriage, but it's also a beginning. It's the beginning of your next chapter. In order to turn the page and move forward. You need to deal with any emotional or financial trauma. Yeah, it's easier to bury your head in the sand, but if you ignore your feelings or your finances for too long, you'll pay for it. In the case of your finances, literally.
Share
24:43
It's not going to be easy to downsize your home or drop your standard of living or cut ties with your past, but it will be worth it. Like Meredith said, it's the price that you pay to have the rest of your life back.
Share
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