Divorce can teach us all quite a bit about financial independence.
Attorneys are notoriously bad with numbers.1 Divorce attorneys are no exception.
In fact, in a recent survey about wanting to be a lawyer that I made up for this post, the top three reasons cited by students entering their first year of law school are:
- “Innate desire to bless the world with my superior knowledge of how everything ought to be done.”
- “Double major in Ancient Sumerian Literature and Shapes of Squares didn’t pan out.”
- “Don’t like math.”
That said, there is a small, second group of attorneys who do have a rudimentary understanding of addition, subtraction, and counting into the double digits. I like to think I am part of the second group.
My basic understanding of mathematics – particularly my understanding of the Hulk-like power of compound interest – has led me to an incredible amount of tongue-biting scenarios with clients. However, there is a benefit to these scenarios: These divorces teach me things about financial independence, and now I can share those lessons with you!
1. Divorce is bad.
Let’s all just agree that the division of a family unit is generally a bad thing. Well, the wise Louie C.K. accurately stated that divorce is never bad news for the divorced couple, but that’s really reaching for the silver lining.
Financially, divorce is really, really bad. And the effect of divorce law on finance is kind of like democracy – the worst way to divide a family except all the others that have been tried.
All too often, divorce absolutely ruins the parties involved. Even where the divorce is not particularly bitter, the combination of filing fees, dividing marital assets approximately in half,2 potentially paying child support, spousal support, or alimony, and hopefully paying an attorney to protect each parties’ interests as well as possible often results in a sudden decline in net worth rivalled only by two things: worldwide economic depression and sharing your passwords with a clowder of Nigerian princes.3
As was pointed out to me on the /r/financialindependence subreddit4 recently, when a divorce begins, both parties naturally become more self-serving. The concept of “no one cares more about your money than you do” applies. This is true regardless of how good, self-sufficient, and kind your partner is. When you’re involved in a divorce, there is always a chance that the other party will start to think “How can I screw him/her?” More importantly, even in an amicable divorce between two well-intentioned, mature adults, the parties have to think “How will I get by, and how will my life look in ten years? I need to make sure I’m taken care of!” The latter response is completely appropriate – but it does mean that the love of your life today might be the person trying to take half of your 401(k) tomorrow.
So, I say don’t rely on the divorce laws of your state. Protect your marriage. Divorce law is one-size-fits-all; unfortunately, that size is the kind that fits approximately none. Customize it, instead, especially if financial independence and free time sound appealing to you!
2. $40k isn’t a lot of savings.
A lot of people come to me with IRAs and 401(k)s totaling in the $10-80k range,5 proudly stating they will be taken care of and they want to make sure they keep it. I often have to cautiously explain to these clients that they will not necessarily be able to retain all of it, unless they are able to compensate their dearly departing partner with some other asset that he or she will be entitled to.
What I do not have the opportunity to explain, given my position as attorney and not financial advisor, is that these sums are nowhere near enough to sustain your wild $80k/year spending habits!
The craziest part is how quickly some of the older clients in that range – like those approaching 60 – have saved that $10-80k. There are an alarming number of people out there who open their first retirement account in a panic after 50 and use catch-up contributions to contribute upwards of $46,000 in a single year, leaving Vigilantes everywhere to wonder: “Why didn’t you do this 20 years ago? You could be a retired millionaire hanging out on the beach happily today instead of begging for time off work to argue with the previous love of your life over dividing your overpriced, gas-guzzling commuter tanks?”
If you’re under 50 today, take heed of your elder’s mistakes: save now. It’s not hard, and you’ll find out how easy it is later when it becomes mandatory.
3. Lawyers aren’t rich.
I knew this long before becoming an attorney, but I still regularly have people come in who assume that because I do what I do, I must be extremely wealthy. Flush in cash, savings, retirement, big house, expensive car, all of it. Spoiler: I’m not.
I find that most people who see me about divorces have a similar net worth to one another across occupations. I believe this is in part because many occupations that pay a lot also come at a hefty up-front cost in education, time, licensing, or in investment for real estate, inventory, intellectual property, whatever. But the greatest difference maker, by far, is simple: savings rate.
Sometimes when I review support calculations with a client, we review personal finances despite the legal irrelevance of many expenses to the support calculation. The idea is to see how much of an impact the various possible support outcomes might have on the client’s life, and what tweaks are really worth fighting for. It’s always funny to me how the cook earning $8 per hour is concerned with his $120 per month car payment, and yet the accountant earning $80,000 per year is concerned with his car payment, too – because it’s $1,200 per month for pretty much identical use. If life is like a round of golf, then both these guys are playing a pro course with amateur talent. Neither should be borrowing money for a vehicle, and there’s no reason for a vehicle that results in a $1,200 per month payment plan unless, perhaps, your armor and submarine travel requirements differ drastically from the typical commuter.
Occupations and fancy consumer products are taken as signs of wealth, despite being perhaps the best indicators of a lack thereof. Keep in mind that, particularly at a young age, while student loans are in repayment, the poorest people you know are those who have the most education and fanciest cars due to lifestyle inflation. And if the spending continues, they’ll stay that way for quite some time.
4. Life is short.
Losing half your net worth in a divorce is bad enough. Losing the years you invested emotionally in one person is worse. And still worse than that, recovering the net worth you need after the divorce can cost you decades more time.
The success or failure of a marriage may, in many cases, turn on financial issues. I am of the personal belief based on loosely supporting statistics and my own experience with family, friends, and clients that an overwhelming amount of divorce can be attributed to one primary cause: money.
Even if it comes masked in issues like cheating, constant arguing over small things, or general “differences of opinion,” it can often be traced back to this: two people who want to do different things with their money and never resolved this difference. If that difference is never reconciled, it results in distrust, sneaking around for fun/avoidance, and general annoyance at the other person for wasting your money (or, for not using enough of their money) – i.e. wasting your time.
Money isn’t evil. But money, mishandled, is a burden. When parties to a marriage aren’t clear up-front about their goals, desires, and values, they are both taking a big chance by getting married. (This is where a prenup comes in handy – and may actually help the marriage last!) The higher earner risks losing a lot of earned income; the lower earner risks losing a standard of living and all the income they relied on for years. Both risk time, and no amount of money can buy that back.
Life is short, and your time is all that matters. Any step you can take to spend less of your life in a situation you don’t want to be in is a step worth taking. And believe me, if you’re getting a divorce, it’s a situation you don’t want to be in.
- Some can’t count to, say five. See, e.g., below.
- Give or take, depending on your state’s laws and the circumstances of the marriage and the parties’ lives going forward.
- Why clowder? A clowder is a term for a group of cats, and you’re going to need more than one Nigerian prince to cost you as much as a divorce. But mostly, the use of clowder here is to placate Mrs. Vigilante. There’s really no reason to refer to a group of Nigerian princes as a clowder. Unless you guys want to make this a thing?
- This thread, which may be quite toxic in part but also contains very good and very bad advice on divorce. If you search for /u/ivigilanteblog, you’ll find more of one than the other. I can’t promise which.
- An oddly common number across the ages of about 35 through 60 is $40k, and I have yet to figure out why. If anyone can provide statistics to show that this is somehow a significant number, I am all ears. It may just be coincidence or selection bias that this is what I see most often.