People get into financial trouble for only two possible reasons: 1) spending too much; or 2) not earning enough. You can add a third one here: 3) getting a divorce.
Live under your means – and seek advice if you are struggling
My clients need a financial recovery strategy and I put them in contact with a financial advisor of their choosing. They should be able to retire at a “normal” age, and even opt for fewer hours at work as they grow older.
The most challenging aspect of handling finances in mid-career is that it is not easy to go counter to lifestyle creep. My clients need to review their lifestyle expenses and figure out how to pare everything down. Expenses such as a car lease, mortgage, travel consumption, food consumption, discretionary spending should all be assessed and slashed.
The goal in financial recovery is to assess all variables that are under a client’s control. This includes everything that is unrelated to divorce expenses. Although not preferable a client might benefit from downsizing a home or reducing costs on a vehicle. These recurrent costs typically consume a progressively substantial amount of earnings that could be better invested elsewhere for retirement.
Back to the basics
A client should maximize pretax retirement vehicles like 401k and contribute to any profit sharing plans. You should also make sure you are contributing to a Roth IRA as long you do not have savings already in a Traditional IRA. You should immediately try to save at least 20 percent of your post-tax, post-divorce fee income and build up. The rule of thumb generally is the longer that your investments are in the market, the more they will have time to grow. After alimony payments are completed, she should contribute that same amount towards her retirement.
You are going to be fine – if you buckle down
Wealth is often defined by a relative number. Most people unfortunately do not have the option of living a wildly extravagant lifestyle had a divorce not occurred. But you will not likely be out on the streets and there is a good chance that you will be able to enjoy many purchased luxuries your colleagues may not necessarily be able to afford. What this means is that if you are able to quickly rebuild wealth in the next several years, you will have the option to cut back to spend more time with your children.
The moral of the story? Financial disasters can happen to everyone. Obviously having a greater earning potential will get you out of trouble sooner, but everyone has the ability to rebuild financially no matter where we start out.
Ronald Lieberman, Esq. is a partner and shareholder at ALBFRM in Haddonfield, New Jersey. As a well-respected family law attorney, Ron represents clients throughout New Jersey as they navigate their unique family law matters.
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