Beware of your emotions
Big changes like the loss of a job or marriage are emotional earthquakes followed by a potentially more devastating financial tsunami. One common problem in divorce settlements: To avoid having to move out of a beloved home, a partner takes property over a bigger slice of retirement savings. That can create a “house rich, cash poor” scenario that spells trouble.
“Poor planning in splitting the assets in a divorce can create hardship for one party – and often it’s the woman with the emotional attachment to the family home,” says Lorraine Ell, CEO of Better Money Decisions, LLC, an Albuquerque, New Mexico-based fee-only financial planner.
A 56-year-old Phoenix woman who kept her house in a divorce came to Ell’s firm, overwhelmed by upkeep and mortgage costs. “Fortunately, the home had $500,000 in equity, so the answer was obvious – sell the house, get a smaller place and invest the rest,” Ell says. “She just needed help to get there.”
Make a plan, celebrate wins
Often, the emotional impact of the financial loss “is far greater than the actual loss of cash,” Ell says. Rebuilding morale with a new reality – and a new financial plan – is crucial.
“You have to know and accept what is happening, and understand there are more important things than money,” Ell says. “Then construct a financial plan to get back to some semblance of normal. That’s easier said than done because often that means working more, downsizing and reducing your lifestyle.”