The Potential Financial Devastation Divorce Can Cause and How to Avoid It
Arguing over the fate of mutual possessions during divorce can add an extraordinary amount of stress to a situation that is already not ideal. In addition to the stress, many believe that the disagreement over the assets even caused them to enter a financial crisis. This is largely due to the fact that the longer the war wages, the more everyone involved will pay in legal fees. Laurence Kotlikoff doesn’t believe this has to be the case and shares insight below on how utilizing economics may help you avoid the financial wreckage.
Divorce is always sad, but when it turns ugly, it’s terrible. You may remember The War of the Roses, the dark comedy where Kathleen Turner and Michael Douglas start out as a perfect couple and end up destroying their possessions — including their luxurious house and cars — because they can’t agree on who gets what. That movie is unfortunately hitting home for plenty of boomers and Gen X’ers. According to a recent survey by Allianz Life Insurance, two thirds of divorced women feel their divorce created a financial crisis.
Many of my friends have gone to divorce war, but unlike Turner and Douglas, they destroyed their finances (by paying steep legal fees), not their possessions. Divorce doesn’t have to be as financially painful as it so often is, though.
Why Divorce Turns Into War
What drives divorce wars? My hunch is that many are driven by very different assessments by spouses of the impact of their proposed settlements. For example, a husband may think his settlement proposal is incredibly generous while his wife thinks it’s miserably cheap. Without a neutral measurement stick, their fight — with the lawyers’ meters running — can go on and on.
As an economist, I’d say that this is where economics can help couples. Its math and computer algorithms can figure out precisely how much each spouse will get to spend now and in the future under any given divorce settlement. And this analysis can take into account all relevant factors, including the division of assets, alimony and child support, child custody and the disposition of the marital home.
How do I know? My company just released a new software tool designed to limit divorce wars (full disclosure: I derive no income from it). It calculates each spouse’s living standard under any proposed divorce settlement.