The Divorce Settlement Looks Good Today, But What About Tomorrow?

[00:00:04] Welcome to The D Shift Podcast, where we provide inspiration, motivation, and education to help you transition from the challenges of divorce to discover the freedom and ability to live life on your own terms. Are you ready? Let's get this shift started.

[00:00:23] Hello, and welcome to this episode of The D Shift Podcast. And today we are talking about one of the two big issues in divorce, because I always say there's only two, money and kids. And today we are going to be talking about the money.

[00:00:37] I have on the show with me Connie Howard. She is the founder of What If Wealth, where she helps individuals to create structure and visibility and understanding of complex financial situations so that they can make really informed decisions at any stage of life. So, Connie, welcome. I'm so glad you're here with us today. Thank you, Mardi. I'm really delighted to be here. So thank you so much for having me.

[00:01:06] And what you're doing, working with money and helping people be prepared to make informed decisions. I think that is the biggest thing, because as a mediator, what I know is a lot of times when people are afraid of their future, don't have a clear understanding of what they're doing, they become very reactive. They don't make good decisions. They pass on great opportunities.

[00:01:33] And sometimes they attach themselves to really bad financial outcomes without understanding what's going on. And I know we're going to talk about a whole bunch of stuff like this on these topics in the podcast. But before we get into that, tell us a little bit about yourself, what got you here and why this is your area of focus. Thank you so much.

[00:01:56] Yes, yes. So I spent 30 plus years in the business world in startup and early stage companies. And a good part of that, by the way, was in statistical modeling. So I was using very large data sets to help predict consumer behavior. So that gave me a real foundation on how to use numbers to predict the future. And then I also, during that time, built literally hundreds upon hundreds of financial models.

[00:02:25] Everything from businesses want to want to project their cash flow or their staffing or their client acquisition, etc. And always in the back of my mind, I was thinking about the fact that businesses use that resource. They use predictive modeling to make big financial decisions. And consumers have arguably bigger decisions on our own level.

[00:02:50] We are making massive financial decisions and there's no similar resource or support for consumers. And so I started this in 2019 for myself. I built a platform and a process that can project any component of a financial, of a consumer financial plan. What our house, how our house will appreciate, how we'll pay down debt, what our income is, what our expenses are, when should we retire?

[00:03:16] And it was really eye-opening to me how tiny changes of the dial today have a very large effect 2, 4, 6, 8, 10 years down the road. So that's why everything that I do for clients has a 10-year view because it's not just today, it's the future. Yeah. And this is... That's how it started. Yeah. Yeah. I'm sorry. Sorry. I jumped all over what you were saying because I got so excited because this is... This is...

[00:03:42] I know we're going to talk about expensive mistakes, but this is really the big one I see, is that people make decisions based on what looks good today. Right. And what seems like a big number now. Right. And without any consideration to what that is really going to look like in the future. So... That's so true. It's the essence of what I do, is to help people not just focus on today, but the downstream. Yeah. Yeah. Yeah. So...

[00:04:11] And I... And this is not just women. This is men. This is everybody. And when we're in crisis mode, which I think most people going through divorce at some level are in some level of crisis mode, we don't take the time to consider those options and to really look at, okay, is this going to help me get to where I want to be effectively? That's right. That's right. Yeah. Yeah. So what do you think... What's the biggest thing about...

[00:04:41] What's the first step, if you're going through a divorce, that you should know? Yeah. The first step, and it's... This should come up at any phase of the divorce. Best case would be before you get started, before you're talking to... Even talking to attorneys, et cetera, is to have your arms around the true financial picture of the household. And as you said, it's both men and women. There tends to be a split.

[00:05:11] It's not always, and I don't want to generalize, but there tends to be a split that women are very good at the household numbers. They know the schedules. They know the day-to-day budget. They know the doctor's appointments, et cetera. But often, they don't have their full arms around the bigger picture in terms of the financial. Where are the investments? Are there pensions? Is there deferred compensation? Are there stock options?

[00:05:41] If we have an investment property, is that cash flowing? Yes or no? And so before taking that first step, and again, anywhere in the process, get your arms around the full financial picture. Because it's very difficult for either side to negotiate what they don't understand. And it's not only just doing an asset inventory. It's understanding the sort of operational components of those elements. What are the tax implications?

[00:06:11] Are they liquid or not? Are they true marital assets? Yes or no? And getting your arms around all of those details is a very strong foundation from which to sort of start the process. Yeah. And a lot of people have really distorted understanding of what are true marital assets. Can you just share a little bit about that, Connie? Yeah, absolutely.

[00:06:35] So just in general, the way to think about it in almost all states is if it was earned or increased value during the marriage because of marital effort, then that becomes a marital asset. So let's say you received a beautiful piece of antique jewelry from your grandmother as a gift.

[00:07:01] And that antique jewelry is yours, that stays yours. If it was something that was a gift that you brought into the marriage, that stays yours. If you brought a house into the marriage and you had three or four years of paying the mortgage on that house, and then during the marriage, both parties contributed to paying the mortgage and the upkeep, et cetera, on that house. The portion of the house and the growth from the date of the marriage forward becomes a marital asset.

[00:07:29] So and then anything that's intermingled, if you received an inheritance from your side of the family and that inheritance was put into joint accounts, that becomes immediately a joint asset. Yes. Do not commingle those funds unless you want it to become marital asset. Following that trail. Yeah. Very good point. Yeah. But I do want to, and I want to make sure that I'm saying this right.

[00:07:54] I just, and I've heard people say this, well, I've kept my 401k separate. I've kept my pension plan separate. I've kept my bank account separate. That doesn't mean separate property because you were married and it was assets coming in, right? Is that correct? That's absolutely correct. Yes. Now, from a practical perspective, if your 401k and your soon to be ex-spouses 401k are similar

[00:08:20] dollar amounts from a practical perspective, you'll keep yours and they will keep theirs. Yeah. But the fact that you both worked and both contributed to 401ks and those 401ks grew during the marriage does mean that for the vast majority of the time, those are marital assets. Yeah. And this is where it gets to- You intended to be together, right? Yeah. You intended to build a financial future together. Right. And so you did. And that is how the law looks at it, y'all. Yeah. Yeah.

[00:08:47] And I so appreciate this because this is where people get testy, right? Well, it's mine. I earned it. Right. And whether you're the moneyed spouse or whether you're the spouse that has the lower income, it doesn't matter. If you're married and you're together, the assumption is that that becomes community property. I'm in a community property state, so I'm very familiar with that term. Most states are equitable distribution, which means the court takes a big picture look at

[00:09:16] things. That's right. But I think there's some exceptions that you mentioned, interestingly enough, gifts and inheritance, I think, are separate. Is it also like if you get any kind of a legal settlement and it comes to you, like a lawsuit settlement, an insurance payout, anything like that, that's considered separate? And are there anything else that's considered separate? Those things can be considered separate with the caveat that if they went into a marital

[00:09:45] account and you started spending that on your house or a joint investment, the money trail, it becomes marital if it goes into a marital account. And this is where speaking to somebody who knows this stuff before you go talk to an attorney is really important because you don't want to be arguing, spending time arguing legal strategies

[00:10:13] with your attorney over stuff that you're not entitled to in the divorce in the first place. So I think that's an expensive mistake too. I couldn't agree more with that. I have seen, so I have seen clients that I've come, that have come to me kind of after the fact. And I've also worked with many clients that are at the very beginning of the process and even during the process. And time and again, I see that if you have your ducks in a row, you know what you're asking for and why.

[00:10:42] You know what's marital, how things are taxable, how liquid things are, then you can defend the asset distribution that you're requesting. And it goes so much better than if you don't have those facts. You will be more confident and comfortable because you'll be on a platform of knowing exactly why you're asking for what you're asking for. And that taxable, by the way, if I can just comment on that, Marty, it's so important because

[00:11:11] many times people, divorce is just, you know, it's not a pleasant process most of the time. You want it to be done. There's some inherent conflict and trauma in there and you just want it to be done. So people kind of think, well, a dollar is a dollar. I'll take the house. You keep the 401k. And I cannot stress enough, that might be the right answer. Sometimes that is the right answer. But I cannot stress enough how important it is to understand the tax implications of what

[00:11:38] you're getting versus what you are, you know, your side of the balance sheet versus your spouse's side of the balance sheet. The liquidity, the growth potential, those all have different trajectories. And so a dollar is not a dollar is not a dollar. Right. Yes. And Connie, thank you. I don't care if we say this on every single podcast. That is, I think, the biggest mistake because your house, yes, it may increase in value, but it may not.

[00:12:08] And a house is going to cost you to maintain. The older it gets, the more it's going to cost you. That 401k is just going to keep growing and growing and growing. Right. Just silently chugging away versus. Yeah. And I think a lot of people don't really, really, they underestimate the true cost of owning a home. It's not just the mortgage, the property taxes, the insurance, which are all big numbers, but it's all the smaller things of maintenance.

[00:12:35] And then again, I'll stress the liquidity, the liquidity and the people often look at the, I do this myself. I look at the equity in my home. I have X amount of equity in my home. Let's say it's $300,000. You cannot turn that $300,000 in equity into $300,000 in cash because you have selling costs, you have closing costs, you might have tax implications, you might have capital gains implications.

[00:13:01] And so another model that I run for people all the time is what are my true walkaway dollars? What are the walkaway dollars of this 401k versus the walkaway dollars of this house? And that can very much change the conversation. Yeah. And I'm guessing, because I know you do a forward look of 10 years, which I think is really critical because 10 years is a good chunk of time and it gives you enough time to prepare.

[00:13:29] Like one year, three or five years, that's really short periods. The older I get, the shorter periods I come now as I'm looking at. Um, but I think the other thing to keep in mind is that, you know, if you can keep your divorce as simple as possible, where you're not splitting up a whole bunch of different assets. Um, you know, I know even with, um, like there's things like quadros, those are going to cost

[00:13:56] money, uh, sometimes to, you know, to get managed. So the, the more that you can understand clearly all of the implications, not just now, but in the future. And I'm guessing Connie, like with, like with the 401k, it's, it's fairly easy to not fairly easy for somebody like me, fairly easy for somebody like you to be able to, to project, you know, the potential top and bottom of that 10 years out. Whereas something like real estate, that's a little, that's a little dicier to be able

[00:14:26] to, um, you know, because markets can just drop for no, you know, bottom out. Right. And, um, so yes, that's very important. So we put in, we use, um, actually the, we get down to the zip code if at all possible, or even the neighborhood, if at all possible and look at, um, historic growth rates. Right. And they vary quite widely across the country. Right. And then we put in very conservative, um, growth rates from there and sort of give, as you said,

[00:14:56] a top and a bottom. Yeah. And sometimes it doesn't change the decision. Sometimes the decision is still the same decision, but boy, do you have a better understanding of what you need to be prepared for. Right. And, and my guess is you're, you don't ever tell people what they should do. You give them the big picture and you share a bunch of different scenarios and then you you help them evaluate what's in their best interest. That's right. I, I am quite neutral. I think of myself as Switzerland.

[00:15:24] I just, I present the information and as very clearly, uh, very clearly side by side. Path A has these effects. Path B has these effects. And by the way, I might've mentioned this, but when I talk about the effects, it's on the two most important consumer financial measures, which is your cashflow and your net worth. And many times when I'm presenting a 10 year view, it's the first time people have ever seen it presented this way.

[00:15:52] They really, sometimes it's very exciting too. I, you know, there's good news in here. It is, you're going to continue to work. Your house is going to continue to appreciate your mortgage is going to go down. Your investments are going to go up. So if you take these steps, you have a nice feature in front of you. Yeah. So it's really invigorating to people. Yeah. And I think, you know, we always assume the gloom and doom in divorce. And yes, there are situations where people do find themselves, um, you know, what is that statistic now?

[00:16:22] Um, in the gray divorce, is it one out of seven women will actually drop below the poverty line? Um, it's pretty startling. In, in a divorce, it can be very, yeah. So it is important. It's important to know before you get into this, what, you know, what the future is going to look like so that you can make the appropriate plans. What about any other, sorry, I, I, I may have put you off. If I can add one more thing there. Don't mind, Marty. Um, okay.

[00:16:48] So one other thing about looking at, at those two financial measures is, um, is many times part of a divorce settlement can be spousal support, child support. Maybe somebody is going back to work and we, we need to give them a little time to get back up to their previous earning capacity. And so all of those things are mapped out. And that is super helpful for people to say, okay, in this plan, I've got two years to get

[00:17:16] my feet back under me in terms of being back at work full time. But I see that in six years, child support is going to end. And so in six years, I'm going to need to be prepared mentally and financially to have that support go away. And let me see how that affects my cashflow. Right. Right. So again, sometimes that can be quite eyeopening, but it is happening. Whether you know that, know it or not, those six years are going to go by and that child support is going to end.

[00:17:44] And you have to, you're so much better prepared if you have a plan in place. So you can ask the question. I didn't mean to interrupt, but I did. No, no, no, actually. That was a really good, thank you for that information. What other kind of expensive mistakes or expensive oversights do people make in divorce that we haven't maybe talked about yet? Yeah, I think that the, okay, so there's the, we sort of talked about the one that is the, a dollar is a dollar is a dollar.

[00:18:15] Right. I can't stress enough to understand liquidity, tax implications, growth. Is it producing income, et cetera. Another one is the emotional versus the financial. And you kind of said it at the beginning that there, you know, that there's the emotional pieces and there's the financial pieces and somebody might be emotionally attached to a house or they might be emotionally, please, let's just get this over. Just tell me what I need to do and I'll sign it and let's get it over with.

[00:18:44] And, um, it's, it's really best not to make decisions emotionally. Sometimes again, the decision comes out to be the same, but it's better to know what the outcome is and to take a deep breath and understand that the decision that you're making today, financial decisions have very long arms and legs. It's hard to unwind them. When you make a decision today without really understanding the downstream impact that, that

[00:19:12] can be, that can be pretty significant mistake. Um, and then the third one I'm going to say, maybe tease this out a little bit is ignoring the tax implications specifically, because another thing that I see commonly is you take, I'll take this brokerage account. You take the 401k. They both have $300,000 in them. You take that. I'll take this. Well, the 401k is taxed when you take money out of the 401k, it's taxed at a much higher rate than the brokerage account.

[00:19:41] So that same $300,000 on both sides of the balance sheet will not be the same in cash in your pocket. Right. And that all depends on, um, I guess it depends on like what, what kind of investment, if it's pre-tax tax deferred, you know, all of those kinds of things have to be considered. And again, if you haven't been involved in this, that may not be your wheelhouse to even know to ask about that kind of thing.

[00:20:08] And that's where, yeah, a lot of people aren't, they just, it's not, you know, a lot of people aren't, nor should they be. They have their expertise and their, um, skills. And this is a, you know, this is a, this is a discipline that you, that, um, one needs to be educated in. And that's why it's great to have somebody come to the table that can help. Yeah. And so I, this might be a little bit out of, out of kind of the typical, but I actually had a client, um, a few years ago who there was a family business.

[00:20:37] She, her and her husband, she wanted to keep the business. And, um, so she did, she didn't realize that they had set up, um, an SEP IRA through the business, a SEP IRA. So that, that means the business gets to write off whatever you put into the, the IRA up to a level of your income. But it also locks you in that if you hire anybody, you also have to contribute for that employee the same way that you are.

[00:21:05] She didn't realize that the business expands, she hired like five people and then all of a sudden had to start funding IRAs. Yeah. And so those kinds of things, you know, it wasn't like she wouldn't have done it, but it was certainly something she wasn't expecting having to do. Right. Yeah. Yeah. I see those sorts of things. I do see those sorts of things.

[00:21:28] I had, um, I'll just tell the story, but I had a client that got the house in the divorce and she had 90 days to take, get her spouse's name off the mortgage. And she thought that that 90 days meant 90 days to just simply fill out a form and take her spouse's name off the mortgage. Oh no. What it really meant. And I can tell that, you know, what that really meant was that she had to refinance the house. Yeah. And she just simply wasn't prepared.

[00:21:57] She wasn't prepared. She had that a very low interest rate. She got a much higher interest rate. The clock started again on the 30 years. And those are the sorts of little tiny gotchas that, that you make, that was a very innocent mistake. Yeah. All the, you know, and so it's, it's important to be prepared and to have that financial support. Yeah. I've had clients that have done that and then found out that they couldn't qualify for the mortgage because they haven't already earned six, six months of the spousal maintenance.

[00:22:25] So they had no income coming in. And yes, the partner was paying the spousal maintenance, but it hadn't been already in place for six months. So the mortgage company went, nah, sorry. So here she was ending up having to sell the house because she couldn't meet, she couldn't meet the court, you know, the deadline of the 90 days. So yeah. Craziness. So, so the, so anything, anything else that kind of jumps, jumps to mind there, Connie?

[00:22:54] Well, I think that question that I hear all the time is what should I do? What should I do? And I, and what I do and what many other CDFAs do is help answer the question of what happens if I do? And I think that framing the question that way is so much better than just what should I do? You want to understand the implications of your decisions. And that's the biggest thing that my product is called the wealth lab.

[00:23:20] And we, and again, we build these statistical models using a client's actual data, all of their numbers, all of their financials, their income, their assets, their expenses, their house. And, and you can see very clearly those side-by-side implications. And that is, gives people breathing room because it is, as I said earlier, financial decisions can be permanent. That, that client that you had with that house, that was a permanent thing that happened to her.

[00:23:48] And if you get the 401k and you give up the brokerage account, once the settlement is done, that is permanent. And so to the degree that it's possible to get your arms around every one of those assets in your asset inventory and understand the implications, that helps you answer the question, what happens if I do A versus B? And it's also very empowering for people. It really is for them to make this decision for themselves. Like, oh, what do I want?

[00:24:15] How much do I believe that I'm going to be able to go back to work and get a job to support myself? And how long do I think that that's going to take? And boy, I'm looking at these numbers and I can see that I have a little breathing room or, um, you know, sometimes the news isn't good. And what I say to clients in that situation is no matter what, it is always better to know once, you know, you are every decision that you're making from that point forward is for your future.

[00:24:45] Right. Because in my experience, things don't get better on their own behind the scenes. And every once in a while they do, but generally they don't. They, they generally get worse if you're not paying attention to it. Well, and if you know that you can't sustain your level of income, um, I mean, I've, I've gone through times in my life where I was literally paycheck to paycheck. I mean, there was not one penny left either way. I know. It wasn't. That's right. You know, and yeah.

[00:25:15] And, and when you're in those situations, if you know that that's going to be, maybe a short or a longer time after your divorce, it's bad. I think I'm with you. It's better to know it and say, okay, how can I maybe relieve some of this stuff? Maybe can I live with my kids or maybe can I live with my folks or can I, you know, can I room with a friend or like being realistic in setting that makes a lot more sense than

[00:25:42] going out and, you know, spending like there's no tomorrow and just like praying that something happens and you know, that that's, that's not going to get you where you want to go either. So Connie, we could probably talk all day. I love the information you're sharing. Um, and I really liked the fact that you've made it very practical for people. You have a gift for everybody. So can I get you to just share a little bit about your gift for the D shift listeners? Oh yes, absolutely.

[00:26:10] So as I mentioned, my product is called the wealth lab and that's a full, you know, it's a full engagement that I have with my clients. I'm working with them for a number of weeks. I'm really helping them to get their arms around both their starting state. Where are you now? And then these, what ifs where, you know, where do you, what, what do you want to explore in terms of taking these various paths? Um, but we also have something called a mini lab and that is answering, there's sometimes there are just questions to be answered.

[00:26:37] And one of them might be, what would the walkaway dollars be if I sold my house? One of them might be, um, I'm planning to retire at 62. Is that a good decision or should I wait until 67? And those are, you know, those are, those are, those are, those are different paths and different income, um, you know, outcomes, income outcomes. Um, and, and so any number of sort of these small wanted questions, I would love to have

[00:27:04] your, your, uh, listeners have that experience with my service and my product. So that's called a mini lab and we're giving that away. Thank you so much. And, um, so I'll have the, the website or the, the link to get to that, uh, in the show notes, Connie, if you had to give people one piece of divorce advice, what would you give them? Um, all right. So this is this, that's such a good question.

[00:27:28] And my advice is, um, divorce is a time where you are making dozens and dozens of decisions more than that, you know, so many decisions, as you said, around children, around finances, around settlements, et cetera. Um, so, so many things are coming at you in a very short amount of time.

[00:27:52] And my advice is you do not need all the answers in one day and do not be rushed or pressured. Even don't even put that pressure on yourself. This is a big life transition that you're going through. Take the time, take a deep breath, gather the information and allow yourself to explore the different outcomes. No matter, again, if it's, you know, child, um, you know, where the children are going to live or where you're going to live or what kind of a job you're going to have or

[00:28:22] what assets you should take versus, um, give up, take a deep breath and take the time because you will, you and your family will really thank yourself later. And, um, so take that deep breath and take the time. I think that's excellent advice. Excellent advice for every, every kind of life transition or thing that's coming up that wasn't maybe wasn't expected or wasn't wanted, or even some of the things that we want, we need to really stop and think about, okay, is this really best for me?

[00:28:50] So Connie, thank you so much for being on the show today and sharing your expertise. It's, it's really been a pleasure. Thank you so much, Marty. And thank you everyone for listening in to this episode of the D-Shift and don't forget to tune in to the next one. Thanks for listening and supporting the D-Shift podcast. If you would like to attend live trainings by our amazing guests and have a chance to ask questions and get answers from our experts, join the D-Shift crew.

[00:29:20] For more details and to sign up, head on over to www.divorcecoachforwomen and click on the podcast page.