The Financial Catastrophe of Divorce #1. Sinking

This is the seventh in a series of posts on ‘My Responsibilities’.

No-one likes to talk about money and I am going to break through that barrier and talk about it anyway. We talk about happiness yet are reluctant to admit the part money plays in that or its role in our sense of security, one of our basic needs.

To comprehend the financial impact of divorce, there are issues to be understood.

A. Where Does Money Come From?

1. Superannuation, retirement funds, investments, savings.
2. Earnings through employment, business.
3. Government pensions, charity, inheritance

B. What Are Our Needs From Money?

1. Essential Needs: Shelter, basic living costs.
2. Non- Essential. Lifestyle, discretionary, savings, gifting, debt reduction.

C. How Much Money Is Enough?

Studies show increased stress in people who cannot meet essential needs. Above that, happiness levels rise to a point. Thereafter, increasing levels of income do not produce a greater level of happiness.

D. How Much Money Do I Need?

Approaching sixty, I would be happy if I owned my home, was debt-free, had adequate retirement funds to provide a comfortable lifestyle, with a little savings tucked away. I am not there yet.

E. What Is a Comfortable Lifestyle?

A basic lifestyle provides only for essentials. A modest lifestyle provides some non-essential items such as insurance, communication and owning your own car. A comfortable lifestyles allows some lifestyle choices such as occasional travel, entertainment and hobbies but nothing extravagant.

You need to account for higher costs in clothes and transport if working, additional costs if you have dependents, any house mortgage / debts, and amounts to put away in savings.

What Is The Impact Of Divorce?

I was travelling along earning a living, leading a comfortable lifestyle, and accumulating savings. After divorce it will be gone – the accumulated savings, the comfortable lifestyle, the means of earning a living.

(a) Depleted asset base

Approaching sixty, we had our house and investments for retirement. One important point to understand in divorce is that, even though one may have a sound ‘total asset’ base, as far as providing for living costs into the future, only those assets available for investment can be counted, not those funds tied up in the home. Come divorce, there are two houses to come out of our total asset pool, one for me, one for him.

The remainder of our assets are crumbling away in divorce costs, forced sale of investments in a poor economic climate, and the impact of the divorce on the business value. This depleted asset base will be halved and the resultant asset base for each will be about one fifth our original investment base. This is, looking at part A above, a catastrophic change to financial affairs for someone approaching retirement.

(b) Earnings through employment or business

My new asset base, if I retired today, would struggle to provide me with basic living costs throughout my retirement years. As that is distressing, I initially chose to continue with the business. After my epiphany, and wanting closure on our previous life, the business will now go. There goes the second source of money from part A above, the means of earning a living.

(c) Impact On Lifestyle

As a single person, my living costs are as much as three quarters of that of a couple, yet the financial ramifications of divorce will see me losing both my source of earnings and sound asset base.

I have pondered and researched these impacts. What I have learned is:

1) I am better off than many. After divorce, some end up with just their home, no home and / or mountains of debt.

2) What I previously thought was ‘comfortable’, was in fact a ‘luxury’ lifestyle, (though still not extravagant). What I previously thought were ‘essentials’ (such as owning a car and having insurance), are in fact discretionary.

3) Money does not make you happy. Inner peace makes you happy. However, there is a minimum money requirement for peace and happiness. If you don’t believe me, watch this closing movie scene where Will Smith finds himself out of the soup kitchens into secure employment.

How I plan to provide  myself with a level of happiness that, for me, means a ‘comfortable’ lifestyle will be the topic of my next 2 posts.

Image courtesy of [CoolDesign]: FreeDigitalPhotos.net

My needs # 3. Financial security

A need is something that you feel anxious about if you do not have it. Once you have it the pain goes away. The gaping hole in my life where my financial security used to be has caused me much gut-wrenching anxiety in the past 18 months.

Yet no-body, including myself, wants to talk about money.

People spend a lot of time talking about what can be bought with money but not the money itself. People will discuss their travel, clothes, gadgets, houses, and cars. However, they do not discuss much about the money itself or where it comes from or how to get it or how much you need. In fact, in some circles a discussion on money is taboo. It is almost as if you are thought less of a person if you discuss money; and that thinking about money, or the lack of it, it is not a prized value to have.

After my separation, I initially spent a long-time focussing on emotional aspects of losing my partner and soul-mate, my fractured family unit, and the pain of the overwhelming grief, sadness and anxiety I felt about my changed life. Then during my recovering phase I spent some time re-evaluating my values, beliefs and attitudes of trust, kindness, compassion, hope, peace, courage etc No where amongst all that was there anything to do with money.

Part of that relates to the guilt of putting any importance on money. In the very beginning after a separation, when you are faced with abandonment, you do not care a toss about any material possession. There is a cathartic realisation that none of that matters. What matters is people and love and care and kindness. So months later when you start becoming very anxious about your changed financial affairs, you remember back that you concluded that money does not matter, and you feel guilty that now you think that maybe it does.

The truth is that even though we all do not want to talk about it, we all do need it in some form or another, and the changed money situation after a divorce can be catastrophic. I am not talking about greed, such as having innumerable world trips or accumulating beautiful things, I am talking about survival. Having adequate funds so that you can pay the bank debt or house mortgage or rent, pay for utilities, afford good medical care, be able to afford to see your family, then maybe having just a little left over for some savings. But above all, there is the need for some reassurance that what you now have will also not be lost, that this ‘less than half of the former estate’ will not somehow disappear by some other catastrophe.

I know that the values of human kindness and compassion are important. I understand that true happiness lies in seeking out long-lasting experiences of savouring pleasant moments, being grateful for what I have, and seeking out human connections. However, I also do crave that one day I will again own my own home debt-free, that I will be able to comfortably pay my bills on time, that I will have no credit card debt, and that I will be able to put away so that I will have adequate retirement savings for me to enjoy a financial-stress-free old age.

Maybe when that time comes, the anxiety at the pit of my stomach will ease.

I have added “Financial Security” to the list of my own fundamental needs.

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Image courtesy [Stuart Miles] / FreeDigitalPhotos.net