What You Don’t Know Will Hurt You: Divorce's Financial Fallout

Kate had been happily married for 23 years. Her husband, John, was a stockbroker on Wall Street. They had two children, a home in New Jersey with a housekeeper, gardener, and pool man, and a summer home in upstate New York. They had everything.

Then one day, John called from work and asked Kate to grab paperwork he needed from his desk in the study. Shuffling through papers, Kate noticed a receipt for a diamond necklace in a red velvet box. Their anniversary had been the week before. John had not given her jewelry.

“Right then and there, I just knew,” Kate shared. “ And I lost it.”

A beautiful wedding, tulle bows draped on the pews, champagne toasts, your mother in a silk suit and your father beaming in a rented tux — this is not when anyone thinks of divorce.

Fast forward 10 years, and it's impossible to pass through one’s thirties or forties without witnessing it happen or experiencing it oneself — the ego-crushing, life-changing destruction that is an unwanted divorce.

One partner, usually the wife, is suddenly left to cope not just with the dissolution of a marriage, the loss of her life’s companion, and diminished self-esteem, but often the threat of poverty.

The Socioeconomics of Divorce

Studies show the economic consequences of divorce affect women more adversely. A long-term study of 600 women followed those women from the time of their divorces in the 1970s until their retirement in the 2000s.

The study compared retirement income of women who remained married their entire lives versus women who resumed their careers after divorce. At retirement, divorced women, even those who resumed successful careers at the end of wedded bliss, earned less than half in Social Security benefits than their ’til-death-do-us-part peers. ⁽¹⁾

Divorced, working women who never remarried had an average Social Security income of $1,000 compared to $2,231 in combined spousal benefits for continuously married women. Women who remarried after divorce did nearly as well, earning more than $2,000 a month. ⁽¹⁾

Leaving the Workforce

Another factor affecting women post-divorce is the decision to opt out of the workforce to raise children. According to the Pew Research Center, 42 percent of working women reduce their hours to take care of children. Twenty-seven percent quit their job entirely.⁽²⁾

Many states are seeking changes to alimony laws, banning perpetual alimony, redefining “long-term marriage,” and encouraging short-term alimony.⁽³⁾

Jeffrey A. Landers, certified divorce financial analyst (CDFA) and author of "Divorce: Think Financially, Not Emotionally: What Women Need To Know About Securing Their Financial Future Before, During, and After Divorce" lists the contributions women make to a marriage that justify compensation after divorce in the form alimony.⁽³⁾

Since only 10 percent of men versus 27 percent of women give up working to care for the home and children, the circumstances are framed in terms of women.⁽²⁾

• Women give up potential careers and earning power to invest time and labor into the family.
• After several years or decades at home, a woman is nearly unemployable while her husband is at his peak earning years (thanks in part to her).
• Although assets may be divided 50/50 in the divorce, a man will replenish and exceed those assets over time because of his greater earning power. A woman who has been at home full-time, in contrast, Jeffers said, “will be liquidating assets from day one and will ultimately go broke."⁽³⁾

John urged Kate to stay at home, to take care of the kids, oversee the building of their dream house, to be available to watch his nieces and even to nurse his grandmother through her final illness.

“Later on, he was always upset that I didn’t work,” Kate said.

Will a Prenup Protect Me?

Would making prenuptial agreements as common as marriage licenses protect women? Attorney Laurie Israel thinks not. For most first marriages, Israel describes prenuptial agreements as “unfair, badly conceived, and very destructive.”⁽⁴⁾

Israel asserts that the less-moneyed partner, most often the woman, is usually coerced into a prenup by the wealthy parents of her fiancé. The less-moneyed spouse usually gives away marital rights that are protected by law.⁽⁴⁾

Prenups almost unequivocally represent an imbalance of power. Attempt to negotiate the contract and the attorney representing the well-heeled family will coerce the less powerful spouse with boilerplate manipulation, “It’s just a business deal that will stay in the drawer.”⁽⁴⁾

“Yes, it will stay in the drawer,” Israel explains, “but when it is pulled out, it will have a devastating effect on one party — the least powerful one.”⁽⁴⁾

On Retaining an Attorney

John’s family was well established and well connected. He was on town council. Everyone knew who he was and they had a large social circle. Kate thought finding a lawyer would be easy.

But it was a small town, and nearly every lawyer knew the family. Kate interviewed seven attorneys — one after another had had a conflict of interest and couldn’t represent her.

Attorneys who suggested, “We’re gonna rip his lungs out,” didn’t sit right with Kate.

“The relationship has to feel right. You have to listen to how the attorney speaks to you.”

The attorney Kate eventually retained told her, “No matter what scare tactics or tricks we use, this was the law, and this is how it will turn out.”

“It was no games, it was just the law.” Kate said. “I liked that.”

“It doesn’t cost anything to interview attorneys,” she said. The cost of retaining an attorney, however, runs into the thousands. Kate was fortunate in that she and her husband had just sold that dream home in New Jersey, and she had half the equity in a bank account.

Women without assets can still secure legal representation. Attorney Tori Stenbak, writing for the Maine Bar, explains that in a divorce, the Court has the power to order one party to pay the legal expenses of the other. ⁽⁵⁾

“Many attorneys routinely take on 'penniless' clients ... when the facts of the marital finances make such a court order feasible and likely,” Stenbak writes. ⁽⁵⁾

If that doesn’t work, some law firms will make loans at interest so that a client can pursue a divorce.⁽⁶⁾

The Court can also order the spouse with assets to continue paying the mortgage and other bills he had been paying so that the wife can keep the household running until the divorce is finalized. ⁽⁵⁾

Divorce Advice from the Trenches

Embarrassed and ashamed, Kate hid her suddenly failing marriage from her friends and even her kids, then teenagers, for a long time.

John admitted he was seeing someone, a woman 20 years younger, but he agreed to marriage counseling.

When the counselor had Kate alone she told her, “This is the worst mid-life crisis I’ve seen in my 35 years of practice. Go and have a great life. Do not wait for him.”

It is a common misperception that women who divorce go on to lives in comfort while draining their ex-husbands' financial resources. A study reported by the Atlantic reveals that for women who worked before, during or after marriage, their incomes typically drop by 20 percent. ⁽⁶⁾

Kate’s lifestyle declined by 96 percent. When Kate heard the divorce decree, it actually said that John would be able to maintain his lifestyle and she would not.

The biggest change for Kate is having to worry about money. She now has a simpler life, more privacy. She returned to the rural, small town lifestyle she grew up with.

“You know, the lifestyle was good. We travelled the world. I never had financial worries. But at the end of the day, life is much better now.” Kate clarified, “As long as your basic needs are met.”

I asked Kate what she would tell other women facing a divorce.

Kate advised women to get legal advice immediately ... as soon as you find the jewelry receipt, so to speak.

“I took a year to get legal advice, so it postponed alimony,” Kate said.

Once you realize divorce is on the horizon, what you don’t know will be used against you. John urged Kate to escape the stress of the divorce and move to their summer home, so she did.

“There was a reason he suggested that,” Kate explained. “Since I left New Jersey, it was abandonment and gave him legal leverage in the divorce.”

Kate thought as the mother of his children, John loved her and would do the right thing. She repeatedly made charitable assumptions about how John would treat her — assumptions that proved harmful.

“You think he cares about you, and that he’s going to do the right thing,” Kate said. “The moment you realize he really doesn’t care about you hits like a lightening bolt. And then there’s the moment your kids realize their father doesn’t care about their mother.”

“Protect yourself,” she urged. “And keep your hand in the family finances.”

Reviewed June 13, 2016
by Michele Blacksberg RN
Edited by Jody Smith

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• Divorce & Separation
• Financial Health