Financial Resilience in the Face of Divorce

By Jesica Ray, CFP®, CDFA® | Jun 20, 2024 |

The emotional challenges of divorce are well documented — in movies, songs, and the stories of our friends and family members who have gone through it. However, a financial fallout can hit as hard as an emotional one. Research reveals that women can bear a heavier financial burden after some financial crises. The average woman will see at least a 30% drop in her standard of living after divorce, while men will have a 10% increase. Research has found that after separation, women overwhelmingly experience a sharper decline in income, perhaps due to children in the picture that have impacted their careers or disproportionate income that came about through the division of labor in the household.

In light of these experiences, how do women build financial resilience in the face of divorce?

Unique challenges

Not all women have had access to fully understand their finances, primarily due to the long-standing bias that men should manage the family wealth. As a result, some women are left sorely disadvantaged in divorce.

Then there is the gender wage gap. On average, women earn less than men for similar work, leading to reduced financial independence — either in married life or post-divorce. Starting and raising families tends to impact women’s careers more than men’s. Societal pressures, non-supportive spouses, or default acceptance of gender norms lead to more women interrupting their careers for childcare responsibilities or providing eldercare. This impacts earning potential and savings accumulation, making financial recovery even more challenging when working through a divorce.

Financial decision-making and divorce

According to a study done by the Center for Retirement Research at Boston College, divorced Americans are more likely to lack enough savings to uphold their customary quality of life than those who aren’t. In most states, assets acquired during marriage are divided equitably between spouses during divorce. This means that each partner doesn’t necessarily receive everything 50/50; instead, they work on what feels like an equitable split based on various factors. However, women often receive fewer assets due to their historical role as the primary caregivers and the lack of information or education on the impact of different assets.

Women also tend to select more practical assets during negotiations that require more maintenance and expenses, like the family house to raise the kids. In contrast, men tend to keep retirement accounts that they feel are “theirs” and will build wealth over time or don’t have additional expenses. While alimony and child support can be a crucial lifeline for women after divorce, they might not always be sufficient to maintain their previous standard of living. Sometimes, women are more willing to take less if they’ve been the stay-at-home parent; sometimes, they don’t feel like it’s something they earned. I encourage my female clients to advocate for themselves in the “right” places (e.g., understanding the tax impact of various accounts or the unvested value in company stock).

Building financial resilience

So, what can you do to build your financial resilience in the face of divorce?

  • Family and Friends: Reach out to your support system. Do not be afraid to contact family and friends to alleviate some stress. It’s okay to take time to grieve and process what you are going through.
  • Financial Awareness: It is essential for women to actively participate in financial decisions during the marriage and have a clear understanding of the family’s financial situation, including assets, debts, investments, and retirement accounts.
  • Education and Career: Pursuing education and building a successful career can enhance financial independence, ensuring women can support themselves post-divorce.
  • Emergency Fund: Women should establish an emergency fund covering at least six months’ living expenses. This fund acts as a safety net during the transitional phase after a divorce when joint accounts might be frozen and for costs like attorney fees.
  • Insurance Coverage: Women should ensure adequate health, life, and disability insurance coverage to safeguard against unforeseen circumstances. If the wife was on her husband’s health plan, she may find herself with a new expense for individual health insurance post-divorce.
  • Retirement Planning: Contributing regularly to retirement accounts, such as a 401(k) or IRAs, will secure financial stability in the long run, even if divorce occurs later in life. In a marriage, only the working spouse often contributes to retirement funds. Having individual retirement accounts for each spouse can be a key way to secure your financial future.

Professional Guidance – Divorce: Engaging a qualified and experienced financial advisor, such as those at Brighton Jones, can be a game-changer during divorce proceedings. A financial advisor can help individuals understand their current financial situation, evaluate long-term financial goals, and formulate a comprehensive financial plan. With their expertise, a financial advisor can ensure that informed decisions are made surrounding finances and can help minimize the financial impact of divorce. I am a licensed Certified Divorce Financial Analyst. By being your financial advocate during a divorce process, I will help make heavy financial decisions easier and money outcomes more amicable. The overall experience will be evaluated from a financial lens for an equitable outcome, accounting for all finances-related nuances.

The value of WLRL to you

The financial consequences of divorce can be particularly harsh for women. However, by taking proactive steps to strengthen their financial position, women can better prepare themselves for the uncertainties of life, regardless of their marital status. Our desire at Brighton Jones is for every woman to be comfortable and confident in managing their finances. It can be a big step to reach out and take matters into your own hands, but many people can help you along the way, like the Women Living a Richer Life client community. No matter where you are in your financial journey, every woman should have the ability to thrive.

Here’s how Brighton Jones can help

Brighton Jones is one of the country’s fastest-growing wealth management firms, with over $24 billion in assets under advisement and 4,000 clients. Our mission is more than growing and protecting wealth—empowering you to live a richer life by aligning your resources with what matters most to you. Their advisors have intimate knowledge of corporate benefits at America’s largest companies. They are proud to help their clients navigate the trickiest components of their benefit offerings, whether minimizing tax liabilities, managing cash flow, or planning around their equity compensation.

Acknowledgment: Grace Marsh and Rory Shanks supported the research and drafting of this blog.

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