Optimizing for Women’s Financial Security Post-Divorce

Women often identify their greatest financial asset as their house or retirement account.

However, these are discreet assets and far from the real asset, which is one’s earning capacity. One’s career, education and earning capacity combine to empower women to be producers giving them control over the resources they need for fulfillment and financial security.

Many women have set aside their careers and withdrawn from the workforce during marriage to raise families and/or to become caregivers to needy family members or to support their partner’s career aspirations and demands.  As a result, returning to a career where they once earned or were on track to earn a high income can be more difficult.

These career headwinds exacerbate during the divorce process as it is time-intensive and has been shown to reduce productivity of employees by up to 40%. This makes it that much more difficult to search, find, and keep a new job as one re-enters the workforce and attempts to restart a career after a long absence.

Once a woman settles into a career, she should invest in herself since it is the best investment she can make to increase earnings.  This may include investing in additional education or certifications to future and support career progression. It may also include developing formal and informal mentoring programs and additional on-the-job training.  The financial impact can be significant.

For example, a 45-year-old woman who is able to increase her salary from $50,000 to $60,000 a year will bank an extra $210,000 by the time she retires at age 65.  If this additional income were invested, she would realize approximately $420,000 at retirement, assuming her investment portfolio generated a return of 6% per year.  This investment can be as simple as investing in the company or government sponsored retirement savings through automatic payroll deductions and perhaps with a company match that supercharges the value of this investment even more. 

It is never too late to relaunch a career. It may not be the exact same profession that was foregone early in the marriage, but rather one adjacent to that career or one that evolves from skills developed while out of the workforce or an untapped passion.  Many high-educated women from prestigious schools may never have had careers or stopped lucrative career decades ago. They still have valuable skills and with the right support can re-enter and reimagine a career that is financially and personally rewarding.

Some women think they are entitled to spousal support post-divorce. But while they may be entitled to it, the laws in most states are not very favorable to the payee.  Typically, there is not enough support for long enough to sustain a woman through the remainder of her lifetime.

Not surprising, often the husband who encouraged staying home and caring for the children at the sacrifice of the wife’s career, now changes the narrative when faced with alimony or spousal support. He is the first to demand that the wife be self-supporting post-divorce.

It is important to understand what your lifestyle costs will be post-divorce to appreciate what it will take to protect your financial future. Using your actual spending data for the past 3 months and including expenses such as one-time events (replacement cell phone, vacation, replacement tires, insurance, etc.) is critical to understand the extent of expenditures.  Unanticipated expenses should be planned for with an emergency savings account where funds are deposited to reach up to six months of take-home pay.

Post-divorce, expenses may increase.  Since there is typically no longer a multiple car discount for auto insurance and there may not be a combined home/auto discount if an owned house is no longer a place of residence and leasing replaces home ownership at least temporarily.

As the children age, there are additional costs to be contended with such as the pre-teen’s orthodontia, a teen’s auto insurance and additional costs to apply to and enroll in college.

How investments are allocated is important post-divorce as women may need to reallocate higher percentages to more liquid investments or those that are income-producing.  Risky emerging market stocks and private equity or alternatives may not be aligned with the woman’s goals and needs post-divorce and should be reconsidered if they are in the portfolio that is assumed in the division of the marital assets. The goal should be to align the goals and objectives with the woman’s risk tolerance and needs post-divorce to ensure that she has financial security now and in the future. 

Monitoring investments and checking on a portfolio at least once a quarter should be a priority to stay connected and in touch with the financial landscape.  However, staying the course in uncertain or tumultuous times is important and the best way to protect assets in the long term.

To protect one’s financial future after divorce, make the most of one’s earning capacity, understand expenses and customize the investment portfolio to achieve goals and support a new lifestyle. 

Note:  This article is for informational purposes only and is not intended to provide either tax or legal advice.  Please contact your attorney or accountant and rely on their independent research and advice for these matters.