Why Divorce Feels like (and often is) a Scary Financial Nighmare

In a decade of practice representing people going through divorce, I often saw people who were scared. Often couples had a lot of debt and were just barely able to pay their bills when their collective income had to support just one home. Divorce feels like and can be a financial nightmare for both parties because the income that once supported one home has to now support two. The painful truth is that even with division of assets and family support, there often won’t be enough for either of you. That drives people to dig in, make it as hard as possible for the other spouse, as you hope upon hope that the other side will give up and walk away. Rarely does that happen. So, you both end up spending thousands of dollars on the court process, often increasing the debt on credit cards, just to still have the financial challenges that come with divorce. Additionally, financial problems are a major reason that couples divorce in the first place.

As you can see through our Fairway Family Mediation website, our online divorce mediation process can save thousands of dollars of that cost, putting you in a much better position as you actually go through the separation. But, other things can help too.

First, getting a handle on debt. When I was a judge, I had to look carefully at people’s detailed assets, income and debt information. I did the same during almost a decade of family litigation focused private practice, and what I have seen, across all income levels, are lots of people dealing with lots of debt. Student loan debt, medical debt, and credit cards. To be sure, there are many causes of debt, and often people are working very hard in comparison to their pay. Still, I often saw spending at levels that people severely underestimated. When I was in private practice, I would often ask my clients what amount of money they needed to pay all monthly bills and expenses. The figures they gave me were almost always very low as compared to the actual spending I saw in the bank and credit card statements.

I also often saw low levels of wealth. That is often true even if income is relatively high. In 1992 two researchers decided to study the wealthy in the United States. They went first to the obvious locations… fancy neighborhoods with huge houses and fancy cars. Did the people who live there have high net worth? By and large, No. They had extraordinarily high income in many cases and correspondingly, extraordinarily high spending. Who were the millionaires? Regular people. People with decent incomes who were frugal. They didn’t live in the huge McMansions, though they had safe and nice homes. They didn’t drive the fancy cars (and never leased cars). It’s a little dated now, but the book is still a great read all these years later. I highly recommend reading The Millionaire Next Door by Thomas J. Stanley and William D. Danko.

If you suspect that your spending may be higher than you think, I also recommend Your Money or Your Life by Vicki Robin. What is money? Vicki Robin says that in its most basic form, money is what you trade your time on this earth for. So, it is really important that you use it to buy things that will honestly improve your life (safe housing, a reliable vehicle that gets you safely where you need to go, etc.) but to think carefully before you spend on consumer items. The point is to get to enough and no more. What is enough? That is different for everyone. One pair of shoes is typically not enough. But how many of us have 30 pair in our closet? Or more? Clothes we’ve never worn, with the tags still on?

The truth is that you can’t plan or strategize for what you don’t track. I mentioned above that when I was in private practice, I realized how much my clients underestimated their spending. So, in January 2018, I tried it myself. After years of doing this work, I was no better than they were at estimating my monthly spending. So, in January of 2018 I started tracking every penny I spent (recommendation from Your Money or Your Life). I have a handmade spreadsheet with various categories (Car Expense, Eating Out, Groceries, Donations, Medical Expenses, Fun, Children’s activities, Daycare, Misc.) That way, each month, I can see to the penny what I spend. Doing this taught me several things: something comes up several times a year. It just does. An unexpected repair bill, an unexpected medical expense. If you don’t track your expenses, you may know what you pay for in fuel each month, but if you don’t add to that the costs for taxes, insurance, repairs, maintenance, etc you won’t know adequately what it costs you to own your cars.

Tracking my spending also taught me that small steps can save a lot of money. Shocking amounts in fact. For example, at the time I started tracking my spending, we had a family gym membership. We never used it. We cancelled it saving $64 a month. Now, I think health and fitness are important so when our schedules and locations made it feasible, we joined the YMCA. But for a year and a half, when we weren’t using it, we saved that expense ($1,152.00 over those 18 months). I also found that knowing I was going to have to write it down and see exactly what I spent, made me not spend. I almost became competitive with myself. Seeing the gap widen between my income and my spending almost became a sport. Saving $15 a week becomes $780 a year. Find a few $15.00 weekly savings and you can begin to get through the financial consequences of divorce (or get on the same page and prevent divorce).
The truth that I saw very clearly with my clients is that being in debt is stressful. It certainly makes the horrible experience of a divorce even more awful and frightening. To be clear, I am not saying that debt equates to fault. But, what debt does do is rob you of your peace and rob you of choices. So, if you think separation could be coming, why not read the books I recommend and start tracking your spending. You may just save your marriage, or if not, you will know exactly what you need each month to survive and avoid debt. That will help you make good decisions not just about your divorce but about employment, spending, and other important decisions in your life.

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