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Just a working class guy figuring out how to live off my retirement funds now.
  • How To Be A DGI Investor And GUARANTEE You Will Lose Half Your Money 8 comments
    Jul 5, 2013 7:01 AM

    Let me start off saying this is not a strategy I recommend to anyone. In fact, I never saw it coming. Well, not entirely true. I was unhappy for a while, but just never admitted to myself to do anything about it. In fact, the best story I heard was this:

    "From a business perspective, it is the worst investment you can ever do. At best, you break even. At worst, you will lose half your money."

    The business I am talking about is marriage, or more specifically, divorce.

    If you have read some of my articles, you will understand this article is designed to be tongue-in-cheek. A sarcastic, but now new reality for me, about investing, investing through divorce, and what will happen on the other side once I am single again. This is still new and raw from an emotional perspective, but since this is a financial site, I am trying to understand the financial ramifications of a divorce. This was written from two time periods - one at the beginning when I just needed to write down what were going to be the big financial issues and secondly, what the results were without delving TOO much into specifics. It will be difficult to comprehend until it is all over. I am not writing this from a pity perspective, but around the questions:

    "What Now? What am I allowed to do financially once a divorce is in process?"

    "What happens to my own financial projections and my investing style once the divorce is final and I am now a single person investing for my future?"

    (Note: Every state is different in how the procedure of divorce works. I am not an attorney and can only draw on my current personal affairs to write this article).

    -Your financial life becomes frozen. What do I mean by this? According to the filings, you cannot do any trading of stocks, buying or selling. If the country's debt ceiling becomes a worrisome issue again and the market drops 15% in 2 weeks, too bad. You can't capitalize on the opportunity.

    -Your assets are still joint until they are not. Our money is still intermingled. Since we only use one savings and checking account to deposit our paychecks, we continue to do that. I thought it would be smarter if we started separate accounts for any salary moving forward to say "Yours is yours and mine is mine and what we had together stays there to pay the bills," but even if you begin to separate accounts, it is still part of the joint assets when things finally get divided. So it would create an extra step if we did it now versus later.

    -You can't deviate from your spending pattern. I keep a big picture idea of how much we spend per month for the last two years. If I see it jumped an extra 20% moving forward and I haven't changed my spending habits, then that would come back to ding her. Right before my friend's divorce finalized, his now ex-wife bought $6000 of furniture just to twist the knife a little more because all the furniture was for the children and he had to eat it.

    -You cannot change beneficiaries on your accounts. You are spiteful, you are hurt emotionally and you don't want this other person to get anything you have amassed. Well, you better hope you don't die either until it is final because he/she is still most likely the primary beneficiary on your accounts. As soon as the divorce becomes official is when you can redesignate who will be your inheritors.

    There are going to be big issues when it comes to splitting whatever assets you have, or sometimes, more importantly, whatever debts you may have. Obviously, everyone's situation will be different. I am going to use my personal situation to show how 5 issues specific to us were putting a massive strain on settling our divorce. Answers to what did happen are put in parentheses after each question.

    1) Can we use one lawyer? Some people have been very lucky, it is an easy split, they use one lawyer for the paperwork and it ends up costing around $2,000-$3,000. As much as we would rather keep the money in our pockets and not in the lawyer's, this was not feasible in my situation even if we wanted to be collaborative (out of the courts and litigation). My last point will explain why. (Note: We ended up not going the collaborative route, used two lawyers, but remained out of an actual court setting)

    2) The value of the house. This should be simple enough. Get a realtor to come over and say how much can you put this on the market for? (We did end up selling the house as neither one wanted it for our future lives. The price to sell became a big issue not from my side, but from my ex and the realtor trying to convince her to sell it quickly.)

    3) Child support. We have agreed on joint custody but my ex-wife will have primary conservatorship (she has greater time of possession with the kids). I will owe child support, which I am fine with. What is interesting in our state is the archaic idea of not looking at my spouse's income to see how she can handle things financially. Her income has ZERO basis on what I have to pay her, even if she made more than I did. (She does not but she makes a very nice salary on her own.) Based on a crude equation, there is a maximum child support per month I pay to cover "food, shelter, and clothing." So, from what I can gather, that per month does not take into account: Day care, after school programs, summer camp, field trips, medical insurance, etc. and the appropriate split of how much each of us would pay above and beyond child support. There is no tax credit/deductions for child support (Note: I estimate approximately 15-20% of my pre-tax salary will be going towards my children.)

    4) Stock bought prior to the marriage. If you have read some other comments, my ex-wife worked for a public corporation. They had an employee stock program. She accumulated some shares via the stock program six weeks before we got married. After 3-4 years, the stock tripled. Looking at the overall weight of our portfolio, I brought it to her attention and said if we sell about 1/3 of the shares, our cost is now "zero" and we still have the other 2/3 of the shares to let it ride. She was never hands on about any investing decision and went with my recommendation. I MAXIMIZED the profit and sold the first shares she accumulated, never thinking six years later we would be in this mess. From the point of sale until now, the stock has more than doubled again and still remains an excellent stock and is again 20% of the total value of the portfolio prior to the divorce. The question becomes, does she deserve to have those original shares as her possession and then split after that or whatever she has left is hers and then split? (I ended up settling that even though we sold those costs basis of shares, she still got those first shares as if they were before the marriage and then split the assets. I was already willing to concede more going in so this came out to my advantage, if you have to keep track if someone won or lost, and frankly, everyone loses in this.)

    5) The value of the business. This is THE can of worms and was making things hostile for a spell. I am a healthcare practitioner. There are the 4 walls and the equipment (the actual assets and the loans with it), but there is my personal goodwill that makes patients come back to the office. If I were to sell my practice to another physician, included in that price is my personal goodwill. HOWEVER, for business appraisals in my state for divorce purposes, the goodwill is excluded because it is solely attached to me, which lowers the value of the business by a lot. There are numerous examples of case law that support this but she is pissed. Her argument being that she stopped her career due to my prior military service and for the first few lean years out in civilian life when I was not making the income I make now and should hope to continue to make moving forward, her income supported us. Though I don't dispute any of this, my feeling is you go by how it's done in this state and whatever the value is, that is what we go with. If the shoe was on the other foot, I would be saying the exact same things my ex-wife is saying now but succumb to the fact that if that is how it's done, then that is how it's done. The sad thing may be that she may want to litigate this and she will still lose and now the lawyers make out. (Note: She did succumb to the fact that this is how the state does it and did not move forward to try and change the law, which she would lose anyway.)

    So how much economic damage will this be? On a legal side, I have heard numbers as cheap as $2,000 and as much as $100,000+, if you get into litigation. Our divorce ended up costing between $15,000 and $40,000 (keeping this range wide for obvious reasons) total because of the number of professionals needed to setlle our issues - two attorneys, a mediator, and a business evaluator.

    What about the other big economic issues? Again, exclusive of the emotional damage this has created, the three economic questions are: 1) How much child support will I be paying?

    2) How much above and beyond child support will I be paying?

    3) What was the split of the total assets?

    Because of my salary, I am paying the maximum in child support, which is fine. The split above and beyond child support was better than I expected. After providing the documentation for what was brought into the marriage and removing those assets from the big pool, the split of overall assets was also better than I was willing to concede.

    But getting back to my original thought: How is this going to change when I can retire? Will this change the way I invest? Do I now feel like I need to take more risk because I have roughly half the assets versus just six months prior?

    To try and predict anything 15-40 years out is a near impossibility, but my best guess is that divorce will delay the retirement by 4-7 years. I always had in my head that I wanted to retire by 53. I felt that was young enough to still be active and travel, but pushing it back to 57-60 years of age will either hurt me mentally or now make me hungrier to work harder to not only catch back up, but amass more than enough to retire earlier. I have less liquid assets because I bought out her half of my practice. Will that make me change my style of investing? No, it won't. I still understand I need cash flow and the purchase of dividend paying stocks is the easiest way for me to do so on a passive level once I do retire from my full time employment.

    So while my financial (and personal) life is now off the pause button, I would love to hear comments about those who have gone through divorce and what to expect from a (mostly) financial perspective only.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: retirement
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Comments (8)
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  • Inzkeeper
    , contributor
    Comments (870) | Send Message
     
    Hello Doctor Dividend,
    I'm sorry you are having to go through this, but I'm glad you were able to keep it out of the courts. I cannot imagine how constrained you must have felt until everything is settled.

     

    One thing I didn't notice you take into consideration (which doesn't mean you haven't) in your retirement calculation is the lowered costs of living you may experience as a single person, instead of a couple. I'm sure all of that may be difficult to predict, and is somewhat dependent on number and age of your dependants when you retire. But, there may be some hope in that regard for retirement age, if you haven't factored that in.

     

    A big financial question related to divorce from the tax side is who can claim the children, and often in joint custody arrangements it is agreed that spouses claim every other year (ie she claims the children on even numbered years, he takes odd years) and requires the paperwork to be provided to the tax preparer every year. It's worth $4-6k a year here in Canada, plus allows expenses (medical, child care etc) to be claimed, so it's pretty significant to the party allowed to claim it.

     

    I hope having things settled is a huge weight off of your shoulders and that you adjust well to this new phase of your life.
    Faye
    30 Jul 2013, 09:59 PM Reply Like
  • Doctor Dividend
    , contributor
    Comments (338) | Send Message
     
    Author’s reply » Faye:

     

    Thanks for the comment. Right now, it's all up in the air. I am not getting into all of my personal affairs but I am back on my own starting in August and I imagine it will take a good 6 months to really have a solid understanding of what my expenses will be per month.

     

    I know you say it's a lowered cost of living, but the formula I have heard is your cost of living is the square root of the number of family members. So the square root of 1, is 1 - your cost of living. If you are married, the square root of 2 = 1.414, so 2 people under the same roof is 40% more expensive than just one person, but if the two people are both working, then you hope income in is more than expenses out. Square root of 3 = 1.71 (so 70% more) and square root of 4 = 2, so a family of 4's cost of living is twice as much as just one person. Since the kids will be with me some of the time, the answer is I don't know. I will also want to try some new things I have not before so there will be expenses with new activities.

     

    I have thought of the tax side. I make no qualms of my income, but because of my income and the tax code in the US, I don't get the claims that you mention. I have the ability to every year as the divorce decree mentions, but I make too much that I should be hitting the AMT with no problem.

     

    Thanks for reading and let others know about the article.

     

    DD
    31 Jul 2013, 08:03 AM Reply Like
  • ronrph
    , contributor
    Comments (56) | Send Message
     
    Thanks for the article, it was very interesting. Sorry about what you had to go through.
    I gather from the article that you don't have to pay alimony, which is nice. If you are paying the max in child support I would assume that is a fair amount, if your ex makes a decent salary, shouldn't her part be able to cover the incidentals? Do you pay a set amount over mandated child support for your share of the incidentals?
    Will you get married again?

     

    Good luck in future endeavors!
    25 Aug 2013, 02:20 AM Reply Like
  • Doctor Dividend
    , contributor
    Comments (338) | Send Message
     
    Author’s reply » Ron:

     

    Lots of great questions. I wished this was more featured and not buried in the blogs. I know I am not the first one to go through this. I'll answer as specifically as I am comfortable with each question:

     

    I do not pay alimony. She does make a nice salary as that was considered. Here's the twist: Alimony you get a tax deduction; child support you do not.

     

    The child support is determined by a formula. I maxed out the formula so I maxed out child support in my state. Child support covers "food, shelter, and clothing." Anything above that is negotiated.

     

    "if your ex makes a decent salary, shouldn't her part be able to cover the incidentals?"

     

    You would think so, but in my state child support does not look at my ex-wife's salary. Doesn't make a lick of difference how much she makes. Now I twist this around and say, to do what's right for my kids and to KEEP HER EMPLOYED, I need to pitch in for the incidentals. That's my rationalization whether it is correct or not. It is supposed to be for them and I will provide for my boys. The amount I pay is a percentage split of the incidentals.

     

    Will I get married again? I am getting used to dating again so marriage would be a long time off. My answer right now is no. As my lawyer said, I need to have a good pre-nup if I go down that path again. Call me guarded but I need to be very careful moving forward if the person likes me or likes my status. It's the sad truth and I have seen others go through this two or three times. That is emotionally and financially devastating.

     

    DD
    26 Aug 2013, 10:16 AM Reply Like
  • SkipK
    , contributor
    Comments (1109) | Send Message
     
    I am so sorry that you had to go through this. My youngest brother went through this same experience and I know how truly difficult it can be. I'm glad you're now on the other side of it.

     

    I just retired two weeks ago at 54. I will only say that enjoy your career while you're in it, and when you have enough you can quit. Don't rush through your career to get to retirement. I enjoyed my career, even though it was very challenging, and there were of course days, even months where I don't know how I got through them

     

    best wishes.
    21 Oct 2013, 11:36 AM Reply Like
  • Doctor Dividend
    , contributor
    Comments (338) | Send Message
     
    Author’s reply » Skip:

     

    Thanks for your comments. All I can say is I am not the first to go through this nor will I be the last. When I catch people up on what happened now, I just present facts - no more, no less. No emotion behind it, but of course, you questions some decisions. Everyone has those stories.

     

    The problem with my career is how physically demanding it is. From the outside, you would not think so, but so many of my friends are having carpal tunnel, stiff shoulders, and bad backs and we are not even 40 yet. So the goal is to have enough to walk away WHEN I CHOOSE TO and know I don't have to work again. That I can go on vacation again and not have an overhead to worry about - that would be something. I'm not there yet, but I am on my way.

     

    DD
    21 Oct 2013, 02:10 PM Reply Like
  • mbn
    , contributor
    Comments (550) | Send Message
     
    I am truly sorry to hear of the breakup, divorce, and aggravation that you had to go through. I have some friends who unfortunately went through the same situations over the years. All the cases, except for 1, went with 2 legal teams, and massive negotiations of everything, before the final settlement and agreement. Your personal situation, from the little you have revealed here, is about at the mid-point of the issues most had.

     

    One divorce went quite smoothly, if that is the proper term to use. And that was the one with the most kids, the most assets, and only 1 spouse working (albeit he is making a very substantial income). That one was settled in a very quick, and relatively painless (poor choice of words, I apologize) fashion. He agreed up front to pay a high alimony and child support amount, and she agreed to allow very liberal visitation rights. The only issue was the house, as he had a home office there and was unwilling to part with it (location, reputation, etc.) They agreed that he would move her to a nice house, which is being rented with an option to buy. There is some agreement on his contribution toward the purchase price, if it comes to that.

     

    And I thought that divorce would be the worst of them all.

     

    But this is an issue that is all to common in our society, and will definitely throw a monkey-wrench into any financial planning.
    5 Nov 2013, 05:52 PM Reply Like
  • Doctor Dividend
    , contributor
    Comments (338) | Send Message
     
    Author’s reply » thanks mbn. She is still bitter about how much the divorce cost, not that it occurred. Her coworkers had it done for 1/10 of ours, but we had assets - a fair amount of them considering our ages - and a business to be appraised.

     

    It's just a matter for me to try and be there for the kids now. She does things mentally to try and punish me but the best part is I can hang up the phone now.

     

    DD
    6 Nov 2013, 06:50 PM Reply Like
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