Financial Planning In Divorce: A Biblical Perspective
- Nancy S. Anglyn, CFP(tm), CDFA <i>National Planning Group of Ron Blue & Co.</i>
- 2004 9 Sep
The purpose of this article is not to address the Biblical basis for divorce or to provide a position on whether or not to divorce, but rather to provide financial guidance to those who find themselves in the midst of a divorce. The statistics found in this article are believed to be accurate and representative, but I want to acknowledge that research in this area is still emerging and is not completely conclusive.
Most couples do not enter marriage planning to get a divorce, but unfortunately statistics show that divorce occurs in about half of all first marriages and in about 60% of all second marriages. The Barna Group reports that 33% of all born-again individuals who have been married have gone through a divorce.
During the divorce process, both parties must be very careful when planning for the family's financial well-being. It is an extremely emotional, often painful period -- much like the death of a spouse. Emotions and other factors can frequently lead to poor financial decisions that can be detrimental to one or both parties over time.
Finding the time for basic financial planning for a married couple is often challenging, and this difficulty is magnified in the multiple issues that make up the process of divorce. Proverbs 15:22 says "Plans fail for lack of counsel, but with many advisors they succeed." Following are key issues and other helpful information that can be beneficial for someone facing this difficult situation:
Decisions have to be made regarding physical legal custody. How much child support (non-taxable income to the custodial spouse) is needed? Have you already prepared for college costs or should this be considered in the division of assets? 1 Timothy 5:8 cautions us that, "If anyone does not provide for his relatives, and especially for his immediate family, he has denied the faith and is worse than an unbeliever."
Division of assets
How assets are divided depends much on where you live. There are nine (9) community property states, where property is evenly divided. There is one (1) title state, Mississippi, where individuals keep only the property in his/her own name, and the court divides the rest of the assets. The other 40 states use the principle of "equitable distribution" which allows a judge to split up the assets, as he/she deems fair.
Ninety-five percent of divorces are settled out of court, often using a mediator to work out the settlement. Mediation lowers the legal cost of divorce, depending on the length of the negotiations and other factors. Collaborative law is catching on. This is a team approach to reaching a settlement, and is usually less time consuming and more cost effective than the adversarial system. Typically the attorneys for both parties agree to meet, along with a financial advisor, a mediator, and often a psychologist or counselor.
Determine if alimony is required (generally taxable income to the spouse receiving it). This is sometimes called "rehabilitative maintenance", and is generally used to help the lower-earning or non-employed spouse get back on his/her feet. Alimony is usually a stream of temporary payments. Obviously this is a highly emotional issue and both parties need to be reasonable in their demands. Be careful to ask for your realistic needs. Proverbs 30:8-9 advises, "give me neither poverty nor riches, but give me only my daily bread."
Other Financial Issues
Cash flow projections incorporating inflation should be run (ideally for both parties) to address issues such as who should keep the home or if it should be sold. This will help determine the ability of one or both parties to meet living expense, to plan for retirement, and to meet educational goals. Further, it needs to be determined how much of the assets should be in fixed income investments versus growth investments. In this stage of decision-making, pensions and 401(k) plans need to be evaluated because, unless these plans are divided the correct way, unnecessary penalties may occur. A Qualified Domestic Relations Order (QDRO) can be used to transfer money from a 401(k) to the non-employee spouse's IRA. Always remember when considering division of assets, equitable doesn't necessarily mean equal.
Other important issues include how much life and disability insurance should be maintained on each party. Separate health insurance plans may need to be obtained if one spouse was covered by the other's insurance. Beneficiaries need to be reviewed and possibly changed on retirement plans and life insurance policies. Homeowners' and auto insurance policies will have to be changed, which could make your rates increase due to an elimination of multi-car discounts, etc. In addition, it is very important that new wills and other estate planning documents be written by parties after divorce to ensure assets will be distributed as desired.
Seeking the advice of legal and financial professionals during divorce is wise, and takes the emotional edge off decision-making during this difficult time. Frequently women are at a disadvantage in divorce proceedings. If they happen to be a stay-at-home mom with the husband handling the finances, financial issues can be unfamiliar territory. If the husband was involved with another woman, the wife may just want to get the division of property and legal headaches over with quickly. Wives in this situation should obtain someone who can wisely and patiently help them through the technical decisions that must be made
In the end, remember Romans 12:18-19 which says, "If it is possible, as far as it depends on you, live at peace with everyone. Do not take revenge, my friends, but leave room for God's wrath, for it is written: 'It is mine to avenge; I will repay,' says the Lord."
Other resources for working through the emotional and recovery aspects of divorce include DivorceCare (for men and women - www.divorcecare.org), and Visions Anew (for women - www.visionsanew.org). Books include: Love Must be Tough, by James Dobson, Christian Family Guide to Surviving Divorce, by Pamela Weintraub, Steven R. Clark, and James S. Bell, Jr.(Editor), Boundaries, by Henry Cloud and John Townsend.
The National Planning Group of Ronald Blue & Co. is a unique division within RB&Co. that serves the everyday steward - For more information you can visit their website: www.everydaysteward.com.