When Marriage Ends: How to Protect Your Assets, Update Your Estate Plan, and Survive the Costs

0:00Kim Palmer:This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks.

0:45Kim Palmer:Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+.

0:55Sean Pyles:Few changes upend your life quite like divorce. While this change is expensive, challenging, and rarely easy, it could be an opportunity to set yourself up for long-term financial success if you play your cards right. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles.

1:17Elizabeth Ayoola:And I'm Elizabeth Ayola. Now, this episode, we're taking on a question from a listener about something we hope never happens to any of you, divorce. What happens to your finances when the relationship ends? Here's the listener's question. Always been curious, how does one navigate divorce? Legal fees while trying to save up and the rising costs of life. Assuming child support payments and rent take up about 50 % of your income, would love to hear your thoughts.

1:46Sean Pyles:To help us answer this listener's question, we're joined by Kim Palmer. Kim, welcome back to Smart Money.

1:51Kim Palmer:Thank you so much for having me.

1:52Sean Pyles:Our listener's question is really broad and kind of simple, but divorce touches so many aspects of your financial life, from taxes to your budget to what you're paying for rent and kind of everything really in some way. So can you lay out a few immediate areas that someone who's experiencing divorce should be thinking about?

2:10Kim Palmer:Going through divorce is such a big life transition. And it's one of those things that can really just trigger you to review everything about your finances. I mean, all of a sudden you're going from a unit of two financially to a unit of one. So that impacts so many different layers of your money. I am not a financial planner, but I've interviewed a lot of financial planners who specialize in divorce and helping clients navigate that. And one theme that comes up almost every interview is that the most important first step is to really do a full and complete review of your finances so you know exactly where you stand.

2:44Kim Palmer:That includes cash flow, income, any investments, just understanding every single aspect of that. Because in many cases, One partner has been handling the finances, and then the other partner is a bit in the dark when it comes to navigating that post-divorce life. So number one is just knowing where you stand. And then from there, you can figure out, okay, what steps and adjustments do you want to take? It might mean closing old accounts that you shared with your former partner. It could mean focusing on paying off debt. But before you even know where to begin, it helps with that big-picture review.

3:18Sean Pyles:And that's why we often emphasize that you and your partner, while you're still together, should have regular money conversations. So even if one person is the more ongoing household money manager, the other person's still in the loop. And that way they're not starting from scratch if something like divorce or even a death happens.

3:34Elizabeth Ayoola:But if you haven't been having those conversations, it's not too late. Well, it might be too late for the conversation, depending on how the relationship went. But it's not too late to educate yourself and start learning everything that you need to learn so you can become financially independent.

3:46Sean Pyles:One area that people often overlook when they're getting separated is their estate planning documents and their beneficiary designations. I hear so many stories from people who they have a death in the family and they find out that their father left everything to an ex that they didn't really want to. And now the kids or maybe the current spouse are out of luck when it comes to getting something like even life insurance money. So please review those areas, too.

4:10Kim Palmer:I think it's one of those things that's like a task you just don't want to deal with, but just put it on the to-do list and get it done because you want to make sure all of that is up to date.

4:18Elizabeth Ayoola:If your parents have recently gotten a divorce, putting myself in this bucket, I had to remind my dad to also update his estate documents, which he didn't know he needed to do, right? So it is a very simple but important thing. All right, so divorce is a process of separation and you are dividing your assets. Assuming that you don't have a prenup, we know Sean is pro-prenup, right Sean?

4:39Sean Pyles:Very much so, yes.

4:40Elizabeth Ayoola:And for people out there who are already married, you can get what you call a postnup, right?

4:44Sean Pyles:Yeah, that's important.

4:45Elizabeth Ayoola:So how your assets are split up can be really complicated, and it also can be a point of contention. I know people who are going through multi-year divorces because of this. So is there a general playbook for this, Kim? Because splitting things 50-50 also is not always the fair way to go about it.

5:02Kim Palmer:Well, the short answer is no. There's definitely no simple and easy way to say that it applies to everyone because it's so situation dependent. And there's so many factors. Of course, state law comes into play here, whether you have that prenup or postnup written out, even how you treated assets within your marriage. So did you co-mingle everything? Did you keep it separate? There's so many questions. So I think that's why it's so important to have professionals, financial professionals or a lawyer who can help you navigate this and really advocate for you throughout this process. And I actually think one positive thing I've seen come out of our culture lately is a bestselling book.

5:37Kim Palmer:I don't know if you two have read it. Strangers by Belle Burden. Basically, it's such a good book. I totally recommend it. It is a memoir that delves into how she navigated her divorce. And she comes from a very privileged background and she's upfront about that. But the challenges that she faces as someone that was not engaged with her finances until the divorce, it's really a universally relatable story. So she navigates all kinds of things, like how do you even know where your money is when you haven't been paying attention for years? So it's a good wake-up call, I think. So if this is a topic that interests you, I would recommend delving into that book because it's just a reminder.

6:13Kim Palmer:We all need to pay attention, and we need to know where our money is.

6:17Sean Pyles:We should also talk about what happens when people are living in community property states. These are states like Texas, California, Wisconsin, where assets acquired in marriage are considered owned 50-50 by both spouses. Does that happen to make divorce any more straightforward or still no?

6:32Kim Palmer:I would definitely never call it straightforward because it's always complicated. But once we start bringing up these specific state laws, I think that means that, OK, it's time to talk to a lawyer who can really understand this because it gets complicated very quickly.

6:47Elizabeth Ayoola:What about the cost of divorce? I know it can vary widely. I personally got divorced in the UK. It was uncontested. We had no assets. So maybe I spend 200 pounds, the equivalent of under$400 in total to get divorced. But I know some people are spending thousands and hundreds of thousands.

7:05Kim Palmer:It varies a lot. I checked this stat with LegalZoom. And basically, as you're describing, it can start with very little. If you have a simple situation, it could even be as low as$150. But then it quickly can escalate to tens of thousands of dollars because there's cases where you're going through the court system and you're arguing for months or even years over this stuff. And so the average probably falls somewhere between$5 ,000 and$10 ,000. And that's just for the divorce itself. Of course, there's other costs to consider that come after divorce, like managing two homes, additional childcare, all of that.

7:38Kim Palmer:So those can be even more costs. And the listener asked how to manage the extra costs like legal fees. I think it really starts with looking over your spending, seeing if there's places you could cut back even temporarily to redirect towards that immediate cost where you have to pay a professional, whether it's a lawyer or a certified financial planner, to help you get through this. All of this can really add up.

8:01Sean Pyles:And this is probably an area, too, where you maybe don't want the cheapest attorney you can get to do this. You want to vet someone, make sure that they're a good, solid, reliable professional, and that might cost you a little more, too, to get that kind of service.

8:12Elizabeth Ayoola:For anybody out there who maybe can't afford a divorce, look into your state resources. There are sometimes fee waivers that you can access that can help you with those fees as well.

8:21Sean Pyles:So Kim, our listener is concerned about managing divorce while making progress on other life and financial goals like saving money and just keeping up with the rising cost of living. What advice do you have there?

8:32Kim Palmer:Anytime you go through a big life transition, whether it's a divorce or a marriage or a new baby, it really gives you the chance to step back and think about your big financial goals and what has changed because possibly going through divorce means you're answering some of the big picture questions about your future differently down to what are your dream future vacations? How do you envision retirement now? Do you want to move or live in a different city altogether? So I think that it gives you the chance to really step back and brainstorm about that. And once you've done that brainstorm and taken some time to reflect and think about what are those new goals, then you can make a plan to save for them because maybe it means making some shifts in your spending today.

9:12Kim Palmer:So you can put aside a fund for your dream vacation in Hawaii or whatever it is. So it's definitely important to think about that.

9:19Sean Pyles:People I know have gone through divorce have used it as an opportunity to totally reinvent their lives, or it's more like they were already in a process of reinvention and the divorce was just one step in that process. So it is a good opportunity to look at certain goals and think, hey, maybe I actually don't value this goal as much anymore. And so I won't be putting as much money or time into that. But funding the divorce is an immediate goal. Let me take care of that financially and then also focus on rebuilding my new life. So that's a good way to kind of reallocate where you're spending your time and money and what you want from your life.

9:48Sean Pyles:Elizabeth, can I put you on the spot and ask if you experienced anything like that after your divorce?

9:52Elizabeth Ayoola:I don't want to speak for everyone else, but I think it's almost sometimes hard not to go through a reinvention unless you just stay stagnant because your whole life is uprooted and changing no matter how long you were married, really. So I definitely went through that. And I think to your latter point, Sean, my divorce was a byproduct of the work I had already started doing. So it was like, well, I'm not happy with my life. How did I get here? I started going to therapy and I was like, well, actually, I shouldn't be here. Then the divorce is kind of what came after that. But it definitely gave me a chance.

10:20Elizabeth Ayoola:I think there's so much grief and heartache that comes with divorce. But on the brighter side is you do get to reinvent yourself and say, who do I want to be at this phase of my life? And you also selfishly get to do that by yourself because lots of compromise comes with marriage. Right. And you make lots of sacrifices, but you get to just say, what do I want and go for it? Something else that comes with divorce is higher expenses because you are no longer a two income household. Our listener assumes that child support and rent will take up to 50 percent of their income. But Kim, do you have an idea of how much child support typically takes up in a divorce budget?

10:53Kim Palmer:It depends on many different factors. But I do think this estimate from the listener that child support and rent together will take up about 50 percent of their income. That sounds reasonable to me because housing itself can take up typically 30 to 40 percent of a person's budget. At NerdWallet, we often talk about the 50-30-20 budget where you have 50 percent of your take-home pay going to needs, 30 percent to wants and 20 percent to debt payments above the minimum and savings. But, of course, you can adjust those numbers to whatever fits your life. So sometimes it's 60-20-20, whatever works for you.

11:28Kim Palmer:And that guideline, it just gives you an estimate of where you can think about how you're spending.

11:32Sean Pyles:And like you said at the beginning, Kim, this is really a time to reevaluate your finances from the top down. So getting the understanding of where your budget is going and how child support or other household expenses are going into that is super crucial. And it might be a good idea to actually track what your spending was like before the divorce and then for the few months after and just compare and see where you need to make some adjustments. because I'm willing to bet that that 50 % that needs category is probably going to be higher because like you said before, Elizabeth, you are now a single income household, most likely, unless you have roommates or something.

12:04Sean Pyles:And so you're just putting all this on yourself and you'll just have to cut back maybe in that wants category or that savings category to make everything balance out.

12:11Elizabeth Ayoola:And just one more thing to throw out there as well. I'm hearing of lots of people who separate or going through a divorce who end up moving back home. So I know it can feel maybe like a shameful thing because you feel like you're going backwards, but sometimes you just need to save money because divorces can be expensive, increasing your income till you get to a point where you could take care of yourself. And if you have kids, your kids too can take a while. So there's no shame in getting some extra help.