I AM DIVORCED

Post Divorce Debt
by Eva Sachs CFP CDFA

Sally (not her real name), had just signed her separation agreement and came to me to help her develop her new budget now that she was on her own. She felt her settlement was fair and provided her with the cash flow she thought would cover her expenses including paying the minimum monthly debt payments. However, she didn’t consider the debt she incurred over the 18 months it took to complete her agreement. During this time, Sally had additional expenses arising from legal bills, therapy bills, unexpected repairs to the house and the trip to England for a school reunion that had been planned well before she separated. All this resulted in Sally saddled with an $8000 credit card balance and $12,000 balance on her line of credit.

I started by asking her to answer the following questions:

You have to be realistic about your money situation now that you are on your own. Dealing with debt means more than making the minimum monthly payments. Be aware that it takes the average person five years to emerge with a clean slate.

If you want to succeed in reducing or eliminating debt, here are some helpful tips.

Track your spending. Knowing where your money goes – on a daily basis – is your key. For at least the first 6 months after divorce, write down everything you spend: every dollar, every dime. Adding up the expenditures by category – food, clothing, entertainment and so forth – will show you where you have room to cut back.

Make your debit card your plastic of choice. When you're using a debit card, you can't spend money you don't have. Take all but one credit card (the one with the lowest interest rate) out of your wallet.

Pay your bills as they come in, rather than all at once. If you do, you'll have more in savings, less in debt, and you'll be happier. Why? Because if you get a big bill – say for heating, or air conditioning – early in the month, you'll compensate and spend less on other things the rest of the month.

Stick to a shopping list. Whether you're buying a birthday present or steak, if an item is not on your list, you didn't think about it in advance. Don't buy it.

Stop shopping online except for groceries. Shopping online for groceries stops impulse purchasing and can save time and money. All other online shopping poses an expensive risk.

Make a visit to an ATM only once a week. Cash is even easier to blow through than plastic. Decide how much cash you want to spend each week. Take it out on a Monday and divvy it up into seven parts. Each day, carry one-seventh of the total with you. You're allowed to splurge with the extra you have saved.

Bank online. If you are a believer – as I am – that time is money, then paying bills online saves you a lot of each.

If Sally found an extra $20 a day beyond the minimum payments she was making now, she could get rid of an additional $7300 of debt in one year!

A conversation with our panel of divorce professionals about supportive approaches to divorce

TORONTO
Sept. 24th 2009

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I'M FACING DIVORCE

What’s my Line? What’s my Job?
by Eva Sachs CFP CDFA

I met with Amy (not her real name) the other day who told me she managed her finances perfectly well while she was single. Once she married, she agreed to let her husband handle the family finances. Now facing divorce, she found herself in financial difficulty because of her husband’s spending habits. She regretted not paying attention to the family finances during their marriage and had to deal with the added guilt of not being aware of key financial information when the marriage finally ended.

When we marry, most couples agree to a practical division of labour and responsibilities. Each partner takes on specific “jobs” throughout the marriage. One may take out the garbage and handles the carpooling duties while the other spouse agrees to prepare meals and pays the bills. As we’re creatures of habit, we tend to keep those same “jobs” for our entire married life. If it hasn’t been your “job” to deal with the finances, it is imperative that you stay in touch with the family finances regardless.

How do you do that?

You should attend meetings with accountants, financial planners, insurance agents to develop your own relationships with these key advisors. Too often I hear women say “I‘ve never even met the insurance agent” or “I’m finding it difficult to get information from the accountant since he and my spouse are old friends and golf together every weekend.”

You should look over monthly bank statements and credit card bills even if you are not the partner actually making the payments.

Pam (not her real name) found a lack of her own active credit history worked against her as she was offered high rate cards with small lines of credit when she applied for a card on her own after her husband left. You should be sure that the credit card you are using has been set up in your own name and not an account in your husband’s name with you being simply an authorized user.

Couples should keep three bank accounts (his, hers and ours) and maintain separate credit cards.

Couples are divorcing at later ages. Many married women don’t make retirement savings a priority. If your husband is the main wage earner, you trust him to save for your retirement. Clare (not her real name) assumed the Spousal RRSP her husband set up belonged to him and not her and wasn’t clear that he hadn’t been adding to her Spousal RRSP for awhile. You need to understand that once you’re on your own, you need to make saving for retirement a priority.

Looking over a spouse’s shoulder from time to time is important even if you trust they’re doing a good job.

Eva Sachs, CFP, CDFA
Phone 416.232.1540
Fax 647.436.3828
Email esachs@womenindivorce.ca
www.womenindivorce.ca