Divorce can be a traumatic emotional experience. But it is also frightening from a financial point of view. Everything changes and many people find they have to reinvent themselves after the split. On top of that, some people have to deal with problems they never had before like budgeting, getting out of debt etc.
Neal’s Notes: It’s easy to freeze when faced with an onslaught of problems. Here’s a way to break your situation down and know which financial issues to deal with first.
Here’s a letter I received last week from Sophie. She’s struggling. You may not be in the same situation that she is, but I wonder if you can relate to her and some of the challenges she faces:
My marriage fell apart a couple years ago and in an effort to make a clean and rift free split (I was the one that left) I absorbed most of the debt. That’s something not often considered in the average cost of divorce. I had to sell our house very quickly and had quite a lot of trouble with buying a new one (two sales fallen through, the third a success).
At the time I was in a very well paid job and this was fine. But theatre is a fickle industry and my past year has not been very good financially. I’m now out of a job and though my next show starts in Januar. I’m still trying hard to find a temp job at the minute as my income is nil.
This is a new position for me, as, though stated before, I understood the impermanence of the profession, I had never experienced that before, as I’d been quite fortunate with shows up until now. I’d also never experienced the ‘between shows’ lull without a partner.
So perhaps ‘crisis’ is a little melodramatic (I am an actor!) but I certainly feel as though I am in one. I guess, I never quite caught up with everything since the split and I’m now feeling that it’s piling up on top of me.
I thought about Sophie’s situation for a while. In fact, I sat on this letter for a few weeks. Sophie is dealing with lots of “moving parts” – lots of different issues and therefore, a variety of action steps to solution.
Here are some suggestions that I came up with for our friend:
1. Celebrate success.
If you were in Sophie’s situation, you might find it very difficult to find anything to celebrate about. But especially during tough times, it’s crucial to do just that. Just because she didn’t prepare before the divorce she still has a lot to celebrate. My experience tells me it’s important to approach challenges from a position of strength and that the best way to do that is to reaffirm success.
So what has she got to celebrate? Plenty.
First, she’s a successful actor. Can you think of a more difficult career to succeed in? I can’t. This tells me she is a strong, talented woman and is willing to work hard. It also tells me she has the potential to earn a great income.
Another point of strength is her willingness to ask for help. That’s not always such an easy thing to do. It’s often easier to sit there and complain or keep banging our heads against the wall rather than to ask for help.
Also, by getting out of her relationship with her husband, she took action even though she didn’t know what the consequences would be. That tells me she is brave and strong.
Sophie has a lot going for her.
2. Recognize mistakes.
It may not be fun, but it’s important to recognize mistakes. Doing so will help her reduce the possibility of making those same mistakes again.
Here are a few decisions she made that I see as possible mistakes:
a. She sold the house quickly. Maybe this was a good move and maybe it wasn’t. Some people do this in order to protect assets after the divorce. But in Sophie’s case, it seems to have cost her a lot. Maybe she should have looked for roommates. This would have generated income and possibly allowed her to hold on to the home. Why did she need to sell the home so quickly? Were there any other alternatives?
b. She bought a new home. Why? If she couldn’t hold on to the first home, why rush into a second one?
c. She absorbed most of the debt. Maybe Sophie did this in order to induce her husband to agree to the divorce quickly. Maybe she did it because she felt guilty for being the one to leave. For whatever reason, it hasn’t really worked out to be a good move. She’s no longer in a position to support that heavy debt burden. If she could have avoided this, it would have been advisable.
This actually illustrates the value of getting unbiased professional assistance when it comes to matters like these. Had Sophie and her husband gone to a mediator, it’s possible that she could have gotten the same result (divorce) with a more equitable division of assets and debts. Sophie didn’t say anything about retirement assets (maybe there weren’t any) but a professional is very important when it comes to splitting up those assets in divorce too.
d. She forgot about job risk. She’s an actress and while she’s been very fortunate in the past, I’m told it’s a very fickle field. There are many great actors who find themselves out of work for many years. It goes with the territory. She should have considered having a second job that could have become a solid income source.
When Sophie and her husband split up, she may have had a false sense of security because she had a job at the time and a very long track record of success. That may have contributed to her willingness to be over-generous with taking on debt. I think Sophie could have asked herself the “what if” questions before she agreed to the settlement she made with her husband.
I understand that I’m reading a great deal into the letter I received. It could be that other circumstances (that we don’t know about) led to Sophie making the choices she did. Still, all things being equal, I think the discussion above could be useful to Sophie. Do you think I’m being too harsh on her?
3. Track expenses.
If you’ve been reading Wealth Pilgrim for any length of time, you already know that I am a huge fan of knowing what it costs you to live every month. For Sophie, nothing is more important than having this knowledge. This will help her get out of the problems she’s facing now and (more important) it will help her avoid facing these kinds of challenges in the future.
By tracking her spending, she’ll know how much income she needs to generate and how much money she’ll need to save in order to survive dry spells in the future. It will also generate an internal mechanism that will help her reduce her spending.
4. Find work.
Sophie already understands the importance of creating income. She’s not sitting around waiting for her life to change – she’s out there making things happen. She probably understands that she really only needs one “yes,” so she doesn’t really care how many “no’s” she hears. Good for you, Sophie. I have a feeling that this is already something she is really good at.
(I learned this word from my 23-year old. She hates it when I use hipster words. Therefore, I use them. Ain’t I a stinker?)
Sophie will resolve her debt issues. Of that I’m sure. Why? Because she got into debt as a result of a very unusual circumstance rather than as a result of daily living.
When people tell me they have piled up credit card debt I always ask what caused the problem. If they tell me they got into debt to support their lifestyle, I always worry because most folks find it very difficult to reduce their standard of living regardless of how much money they have (or don’t have).
But when something happens that is very unusual and (typically) non-recurring, I’m less concerned. Sophie’s situation is unique and one she’s unlikely to go through again.
6. Make saving priority #1 (after getting out of debt).
Sophie starts her new project shortly. As soon as she gets her first paycheck, she should attack her debt problem with everything she has. The next step will be for her to work tirelessly on saving one to two years’ living expense. (She’ll be able to do this easily because she’ll follow step #1.) The reason she needs so much savings is because finding work as an actor is something that she can’t count on – despite her track record and talent. The good news is it’s much easier to start saving than you might think.
How can Sophie’s experience with divorce debt help you?
You might not be an actor, but you might be facing some financial challenges at the moment. If so:
1. Celebrate your success. Get in touch with your strengths. Realize you’ve overcome obstacles in the past and you can and will do it again. Nothing has defeated you before…right? You’re still here. This is nothing. You can do it.
2. Identify where you went off the tracks.
3. No matter what your financial situation is, track your expenses every month. This will only help you. You can stop doing this when I tell you to….(which will be never).
4. Take the best action you can that will have the most impact on the problem. Don’t waste your time on addressing anything but the most crucial issue at the time.
5. Chillax. “This too shall pass.” You’ve got a problem but if you’re doing everything you can to remedy it, what else can you do? What’s the point in beating yourself up or sitting home worrying? Worrying only saps your ability to solve problems.
6. Once you are free of debt, start to build up your savings.
Make sure you don’t repeat the past and make the situation worse. Don’t dwell on your mistakes, but own up to them.
Once you realize you’re doing everything in your power to solve the problem, let it go. Make sure you understand what the root cause of your problem is. If very unique circumstances came together to cause this problem, create a solution – like creating a much bigger savings cushion. If the root problem is your lifestyle, be honest about it and solve it.
What other advice would you give Sophie? Have you faced similar challenges? How did you overcome them?
I should say as I seek my life license that the company who is helping me with this is providing me and all applicants with financial education which is the primary reason I joined as I am working towards financial independence!
I would recommend this for anyone in financial straits or single parents struggling financially. I am learning important financial aspects which will teach me to advise people how to reduce and cleaup debt, learn how to make your money grow and prepare for retirement. This is an excellent opportunity and has been a LARGE part of how I am making it through this positively as part of their program in training and daily is to provide positive and educational feedback – including daily text messages. I couldn’t have done it without this group and know that because of the education that I learned from them and will continue to learn as I stay with them even after I get a full time job as I plan to do both, will assure that I do not fall behind financially again since the first thing I am going to do after getting a job is to start that emergency fund – 🙂
I’m in the same boat!!! I was not an actor, I was a professional in the corporate world and lost my job in May, one month after I left my husband in April. I had saved money at the time, however, as my husband went in to depression – mind you we also lost our house due to short sale since it was in foreclosure, lost our cars-long story, I saw it coming, tried to work out resolution with my husband who did not cooperate and poof, all gone – everything! Communication regarding responsibilities was a big problem during our marriage as he ignored much responsibility thinking that bringing home a paycheck was enough – mind you that I worked an equally important job and was the one left troubleshooting bills, children, etc. As he went in to depression after I left, he often forgot to pay the few bills in his name as most were in my name since I was the bookeeper of hte house, with that said, his bills would be pulled from my account as did a joint personal loan. Regardless of me telling him this, he would not pay me back. On top of this, I found a mediator lawyer in hopes of making a peaceful divorce for the kids sake as well as splitting the cost, and this lawyer took his time regardless of my weekly followups causing more debts to be taken out of my account leaving me broke and 0 balance! We are both on unemployment and carless, my credit is in the 400’s as his is nicely in the 600’s since everything is in my name. As I raise our child, he provides a certain amount and then says he has no more and is moving like a turle to get a job while I have taken 10 technical tests, and working towards a life insurance license to supplement and apply for 20 jobs a day! I barely made rent this month and am afraid that I will not have rent next month. Thank God I have an interview Tuesday, but then my next concern is how to get a car with no cash and bad credit so that I can take my son to and from school as well as myself to and from work.
I am staying positive as I had a nervous breakdown when I left but have forced myself to pull myself out of it as #1 I have no medical benefits, #2 my son needs someone to depend on since my husband goes thru periods of depression and drinking, #3 thru faith and positive thinking and networking, seeking help, I know that I will eventually make it out of this mess stronger and wiser!
I agree with the lessons learned that you mentioned to a tee as I have thought about each and every one of those and am thankful that although I do not have financial assistance, I have a therapist who at times has not charged me, a priest who checks on me regularly to let me vent and pick me up again with faith and strength and few good friends who have done groceries for us a couple of times so that my son is fed. Believe me as after divorce, much less financial hardship, you find out who your friends are as many flee once they see those tears come from your face once too often!
Good luck to both of us sounds like but it also sounds like that we are both caring and strong women who accept and acknowledge responsibility so I’m sure that once we pull out of this, success will be around the corner 🙂
Another zinger of course. You also have a very good idea there. I think it plays into the remarks left by Justin. Looks like everyone is focused on the “chillax” factor. Hey…are you all from California too?
Wow Justin….very insightful. (Why didn’t I write that!)
I agree that attitude really is everything. When I was younger, that seemed very trite but now I can see that coming from a “happy” and “strong” place really has a great deal with the outcome of most things.
I would say step one is to find happiness. When you are happy and in a good mood, optimism goes up, confidence goes up, and then finding a job, a way to save, a way to pay off debt, and a way to turn what is otherwise a depressing situation into something to grow from. Everything is easier when you are happy.
That said, i know from experience if you are in a relationship for a while, often your friends were and are friends of both you and your counterpart, so that makes it even harder to just go hang out and find happiness. However, it is possible; and should be the first priority.
My Journey says
The only thing I would say differently is rather than just pay debts then save. Figure out which will help her chillax more…an extra 5K in the bank OR 5K paid off on her CC when she can handle above minimum payments?
I don’t think it has to be or should be one or the other.
But great to do list!