Many unhappy couples who would otherwise seek a divorce remain unhappily married because one or both believe that they cannot afford to divorce. Typically, these couples have long lived beyond their means accruing significant credit card debt that weighs them down and makes each month a budget nightmare. Although at least one of the partners feels desperate about the marriage, he/she cannot imagine where the money would come from to finance a second household and other increased costs that accompany divorce.
But staying in a dead marriage has its costs. A hostile home environment takes a toll on children who frequently become depressed. They may act out in school or other ways and require counseling and tutoring to keep them functioning. The parents are also frequently depressed to the point of requiring therapy and medication. Job productivity can plummet, endangering employment security. And for many, the loneliness of a loveless marriage can feel unbearable. So people who need to divorce but who stay together for practical reasons often find that their lives become unbearable. Such couples often wait until they are at their wits end and each other’s throats before coming for help. They are surprised to learn that for most couples willing to rethink what they regard as necessary expenditures, divorce is economically possible.
There are three ways to balance expenses and income in two divorced households: liquidating superfluous assets, reducing routine expenses and increasing incomes. When working with divorcing couples I encourage them to consider all three.
I begin by asking them to prepare a budget showing how they are spending their money at present, two other budgets reflecting how each proposes to live in separate households and a statement of assets and liabilities showing everything they own and everything they owe. Then we begin looking for the easy ways to cut expenses. And we begin asking whether every expenditure is really necessary? Sometimes there are obvious savings that the couple has not considered. For example, a common resource is whole life insurance the couple has had for a long time. A couple that recently consulted me had two whole life policies with net cash surrender value of $49,000. They also had $45,000 of credit card debt with minimum monthly payments they could not afford. I suggested that cheap term life insurance could easily meet the need to provide for their children and that by cashing in the policies they could get rid of all of their credit card debt.
Crushing credit card debt with 29% interest rates is a common problem that must be solved first. It often pays to cash in retirement accounts even if that incurs penalties and taxes because until the credit card monster is tamed they will have little chance to regroup. And if that is not an option some type of bankruptcy may be considered. These are generally options that the couple has never examined because they regarded them as unthinkable. But we look at every asset as a resource, even those long regarded as sacred. The same approach has to apply to expenses as well.
If a desperate couple is to afford a divorce all discretionary expenses have to be regarded as up for grabs. Common examples include private school tuition, 401K contributions, tithes to church, country club and pool club dues, summer camp fees, costs of children’s traveling sport activities, expenses associated with summer homes or expensive boats and many others that have been regarded as indispensable but which are in fact, discretionary. Divorce is about change, and in divorce everyone in the family, including children have to accept some change in their lives, much of which is not welcomed. For parents racked with guilt, reducing the discretionary expenses for children is often the biggest challenge. But many expensive activities from riding and skating lessons, private schools and summer camps represent the difference between staying together in misery or divorcing and starting anew.
Debt reduction and budget reductions are the first two of three legs of the plan. The third is an evaluation of income. If both of you are fully employed at the maximum salaries for your industry there is little to do. But for many couples that is not the case. Either of you may have been in a holding pattern for some time, reluctant to do those things necessary to getting a raise or a higher paying job elsewhere. So now is the time to test those waters. Sometimes the wife is working part time or not at all having elected to forego income in favor of spending more time with the kids. That may no longer be practical if a full time job would make the difference between affordable divorce and staying miserably together. There are few middle class couples who can manage a divorce without two full time incomes. In some cases enhanced income is not possible without more education or training. Although a one or two year training or degree program might seem daunting, it may be the fastest route to independence and affordable divorce.
Developing a lean budget, while maximizing income requires some difficult and painful decisions. But if a marriage cannot be salvaged this may be the only realistic way to a decent ending and perhaps new and better beginnings.