How Divorcing Women Can Avoid Becoming a Bag Lady

According to the US Department of Human Services, 75% of the elderly poor in the US are women. An overwhelming majority of them are divorced or widowed. They all have one thing in common and that is keen sensitivity to planning their financial future. Divorcees are scared of potential financial disaster. No wonder. Studies have shown that divorced women without significant assets may consume their assets in less than five years.

Thus, it comes as no surprise that the main objective of women is not to outlive their assets and do whatever is necessary to avoid becoming a bag lady.

To help circumvent this possibility, it is imperative to implement prudent strategies early in the divorce proceedings. What comes out of a divorce could make or break a women’s financial future. Consequently, it is highly recommended that women utilize the services of a Certified Financial Planner, CFP, to help ensure that the bag lady scenario is avoided. Clearly the stakes are high.

Why women are vulnerable

Studies have demonstrated that women tend to be more emotional than men. Unfortunately and all too often, improper financial decisions may be made during divorce proceedings which could have long-lasting negative ramifications. Having an independent financial advocate can help avoid major mistakes. Proper professional help can have long-lasting positive effects.

In a typical marriage, a woman allows her spouse to handle the finances while married. Entering a divorce, a woman must come up to speed very rapidly on the family's total financial picture in order to be on level ground with her soon-to-be ex-spouse, who has handled finances for years. Alone, most uninformed people cannot attain the financial literacy mandatory for satisfactory divorce settlement negotiations in the time required. This is a major reason why a financial consultant working on behalf of the client can be most beneficial.

Lawyers—as necessary as they are and as good as they are in legal matters—are usually not as financially astute as a highly-qualified financial planner. Working with a Fee-Only CFP adds value to the team.

Women tend to be attached to the house more than men. Many times, this illiquid asset is not appropriate for the present circumstance and future strategies. A house demands substantial cash for routine maintenance and may require capital expenditures (both anticipated and unanticipated). A house might not appreciate as expected plus could have embedded capital gain tax liability potential. An advisor can properly identify potential problems and provide recommended solutions.

In addition, an advisor can help identify the cost basis, uncover hidden liabilities, and project future tax consequences. Often overlooked, this mistake could cost thousands of dollars.

The division of assets

Going into a divorce, the issue of dividing the property is important. A financial advisor can assist with the process in identifying “strong” versus “weak” assets. Helping to choose the proper stock, mutual fund, or other asset can be valuable; especially for those who may not have the time or inclination to be educated investors.

How to handle pension and retirement assets is another consideration. A detailed analysis of present and future valuations is essential for properly dividing finances. This helps procure the most benefit for a woman.

Just dividing total assets in half is not necessarily the proper way to proceed and may result in the detriment of the woman in the long run. Including a Certified Financial Planner early in the partnership between the client and lawyer can strengthen the team and help prevent women from singing the bag lady blues.

Learn more about the financial impact of divorce

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