Transcription: Segment 4
Paul Winkler: This is the Investor Coaching Show, and I am Paul Winkler, your host. We talk about the world of money and investing right here on the Investor Coaching Show.
It helps us out with people that are trying to sell a business, trying to figure out what it might be worth, how to improve the value of your business because people own their business. A lot of times they don’t quite invest outside the business the way they ought to. They have all their money that goes in their business and then try to figure out how to get the money back out of the business. Well, that’s one of Anne’s areas of expertise. She’s also a charter financial consultant, which is one of the two big competing financial planning degrees out there and is our chief compliance officer as well. So she’s all around pretty doggone well-diversified as far as education goes. So good to have you back in here.
You and I saw an article, and I thought it was really a good thing to talk about simply because, when you deal with women going through divorces and going through the issues, a lot of times they get the runt of the deal. And I thought it would be well-versed to talk about that.
The financial effects of divorce on women
Anne Sawasky: Yeah, well, yeah. The interesting thing is, according to this article in MarketWatch, failing to secure your financial future and for other common mistakes women make during divorce, they say that women over 65 are 80% more likely than men to live at or below the poverty line. And the big reason is divorce. And there is a lot more of this.
Paul Winkler: “30% decline in their standard of living following divorce versus men with an increase of 10%.” I mean, that’s pretty skewed right there.
Anne Sawasky: Right? Right. And you know, that the thing is, unfortunately, I mean, I’ve seen it through the years, even myself, I’m not a divorce attorney and I never have been; however, I dealt with people who have gotten divorced and women, I think, tend as a general rule to be a little bit less aggressive in the divorce process, because I think women, as a general rule are just less aggressive than men to begin with.
But also I think that a lot of the women are not necessarily the highest breadwinner in the home. And so they’re more dependent on the former spouse. And they also, I think that with anyone in a divorce, who’s not there voluntarily, they’re hoping that the former spouse, Oh, if I’m nice, if I don’t push back, maybe he’ll come back. Maybe he’ll just be better or we can split the divorce attorneys and save money because divorce is expensive, you gotta pay attorneys and you have to set up a new household. There’s all sorts of costs incurred that people don’t think about. So I think women tend to often get a bad deal in a divorce because of some of those reasons.
And that’s why their decline in the standard of living is more than men. But there’s some things that women can be aware of. I think the mistakes to avoid: one is, and this sounds funny, but as an attorney, I always tell people, what if you’re in a divorce setting, I hate to say it, but you’re in an adversarial relationship with your soon-to-be ex-spouse and you need to protect yourself. You should never have the same attorney.
You should never do these things where you try to work it out. You need to go get a bulldog of an attorney to help protect you, because you don’t want to affect your financial future. And part of that though, too, is this: one of the mistakes is not only to get a really good divorce attorney on your side, but to bring in a financial advisor during the process too, because people forget that the attorney knows about the legal end of it, and they know how to negotiate a settlement with that.
And they’ll be able to speak to some of the tax ramifications of things, but they don’t know the financial end of it. And so they’re really not the right party to be relying on for how is this whole thing going to affect my financial future? and Would I be better off in selling the house or keeping it? and Should I be worrying more about having liquid assets and things that are not liquid or that won’t grow as well?
Paul Winkler: Yeah, the article actually gave an example of one lady that had gone through a divorce and the situation was that he had a business, her husband had a business and basically was illiquid. And the buyout over a period of years sounded good to her and she thought, Hey, I can continue in this house.This will be great. I can do this. No problem. And the reality was it was an interest-free loan, number one, and it didn’t take into account inflation, didn’t take into account what was going to happen after the payments stopped.
So there were a lot of things. I remember one time I was actually an expert witness. I was called in, in a divorce situation, and they were completely valuing the 401(k) when they were talking about dealing with their 401(k). They’re completely valuing that incorrectly and not taking into account the tax ramifications down the road that would be incurred when the money was pulled back out.
Not only taxes, but how it affects your social security, how it affects social security, Medicare taxes, Medicare premiums. There are all kinds of things that are affected that you just don’t even think about necessarily.
Anne Sawasky: Right. Right. And you know, and the other thing that you want to keep in mind, too, is, yes, it’s really, you want to keep that house. You want to not disrupt your children and so on and so forth. I get that. But the problem is that the house has a lot of value there that then you’re taking on, on your own. And it may not financially be the best thing for you to do at the time and for your future, you know?
And so, are you jeopardizing your financial future by trying to keep something when you maybe shouldn’t keep it and you should just split it, sell it, and then, you know, move on to something you can afford, which again, a financial advisor can help you figure that out.
Paul Winkler: You have to get around and get out of the emotion of it because it’s so many times your decisions are being made based on an emotional basis. And that’s not a good way to make decisions.
Anne Sawasky: Right. And that’s what I was saying earlier is so many times you see that they’re making them on an emotion that they’re hoping the spouse will come back, hoping, Oh, if I’m nice about this, maybe it’ll make a difference. Or, I don’t want to affect my kids, which is a totally understandable thing. But the thing is, your kids are affected either way. And then, speaking of kids, by the way, I mean, the child support is really important and sometimes spousal support is available, but that the key is not only getting it, but collecting it because in the United States, more than half of the custodial parents fail to receive their full child support payments.
So I saw that it was important to negotiate for it. It’s important to protect that income stream in a lot of ways. And you can, you can do that partially by insurance. So make sure that there’s a death benefit, large enough to cover the future value of the support and that you own the policy.
And even doing things like making sure that there would be a wage assignment in place to ensure that the child support and the spousal support gets paid because it’s so often it’s not. Let’s just say, for example, in that case, you chose to keep the house, you’re relying on those spousal or those child support payments, and then they don’t come in.
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Think about retirement plans
Paul Winkler: Seen that way too many times. Yeah. I’ve seen that. I’ve seen that often and there are things you can do with retirement plans. You got what are called Quadros as we call them. So you can actually have a situation where let’s say that all of the money or a lot of the money has been built up in the one spouse’s name at their employer, instead of pulling money out and paying taxes on it and paying penalties on it, it actually can be transferred to the other spouse penalty-free and tax-free.
Anne Sawasky: That’s very important by the way, for women, because let’s say that the woman was not in the workplace or not in as high of a paying job, the odds are there. They’re going to have less social security to rely on in future years. They probably don’t have as big of a 401(k), or maybe they don’t have any 401(k) cause they were a stay-at-home mom. So you need to be thinking not only of how, how is my financial situation going to look right now? but how is it going to be when I’m retired?
And I really do need to be thinking about that 401(k) and having some money put aside for after I retire. So that’s actually more important for women simply because women live longer. So not only do they tend to make less because a lot of women do take time off for the workplace or maybe they’re working part time or maybe they don’t make as much whatever reason. So they don’t earn as much, which means their social security on average is about 30% less than men. And many of them don’t get pensions and yet women live, you know what, two to three years longer statistically than men overall.
Think about social security
Paul Winkler: Yeah. And you know, another thing to keep in mind in regards to social security is, under the current law, there’s no penalty. Even if a remarriage occurs after age 68, 60 or later, you may actually have benefits of the ex-spouse, social security, and be able to do some things where you take their social security, the spousal benefit, and then switch to your own benefit later on. And so that’s a planning thing, and that’s a reason to engage a financial planner because these are things you may or may not know.
And then if that person passes away, I’ve actually seen people switch benefits too. And they may be remarried and they switched their benefit to the ex-spouse that passed away. And I saw one lady, she was in her eighties when she did that, her ex-spouse passed away and she switched to his benefit and she got the spousal benefits. So, you know, things that you need, you may not know that you need to know regarding how social security works and how you can actually benefit yourself.
All right. That’s it for the Investor Coaching Show today. Hope you enjoyed it. I am Paul Winkler.
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