Making money mistakes can have ramifications that can take years to correct. What are the most common mistakes people make with their money, and how can you avoid them?
In today’s show, Doug shares common financial errors people make, and gives suggestions on how to be a more successful investor.
Many money mistakes happen when a couple is getting divorced – both in the negotiations and immediately afterwards while setting up separate lives.
Financial advisor Ted Jenkin of oXYGen Financial explains the three money issues that you must think about during a divorce. He also answers crucial questions about how divorce affects Social Security when you retire, and whether financial pre-nuptial agreements are really effective.
Ted Jenkin blogs about money, divorce, and other financial issues at http://www.oxygenfinancial.net/
Follow him and his work at: @oXYGenFinancial
Watch oXYGen on YouTube.Read the Transcript
Interview with Ted Jenkin
Financial advisor Ted Jenkin of oXYGen Financial explains the three money issues you must think about if you get divorced. How does divorce affect Social Security when you retire, and are pre-nuptial agreements effective when the time comes?
Douglas Goldstein: Ted Jenkin has actually been in the financial planning business for 22 years. He has also set up a company called OXYGen, which serves the X and Y generation in terms of financial planning.
One of the things I want to touch on which is something I think that for better or for worse you do deal with a lot is the financial issues related to divorce. Now I know it’s not always a popular topic because everyone wants to push it under the rug but the reality is that people are dealing with it all the time. Tell us some of the important financial things people should remember if they are getting involved in a divorce.
What Are the Three Financial Issues You Should Think of if You Get Divorced?
Ted Jenkin: There are a lot of moving parts if you get a divorce, but I will tell you there are three important things to be thinking about. Number one is to make sure that you know where your credit is at. A lot of times when spouses get married, all of the credit may be in one person’s name or in the other person’s name and that could affect one of the spouse’s opportunity to actually get credit when they get a divorce. Two is do you know where all the assets are? It’s very interesting when people go through the process of getting divorced there may be assets that were hidden or titled so that sometimes spouses just don’t know where all the money is. Three: know who the beneficiaries of all of the policies and retirement plans. That’s an important thing to know. Sometimes spouses don’t even know who is the beneficiary for what.
Douglas Goldstein: We were representing a woman who had gotten divorced and she said, “Yeah my husband handled all the money,” and I said, “That was fine,” and she said, “But we split everything,” and then I said, “Are you sure it was everything?” She goes, “Yeah, even that account from Switzerland we split,” and I said, “Are you sure?” and it turned out that because the divorce was still going on all of a sudden she mentioned it, and you know when someone is hiding money offshore then you really have to worry.
Ted Jenkin: That’s true, and also when you are dealing with business owners, especially, who get divorced. Valuing a business could be very difficult because a lot of times in those divorces most of the money is actually in the value of the business. That’s something that you really … if you get a divorce you’ve got to make sure you’ve got a fair evaluation of the business. This is another thing to watch out for.
Douglas Goldstein: How would you recommend someone even start thinking about that?
Ted Jenkin: I recommend you know – well, it depends who I’m representing. I’d recommend that both spouses get their own separate evaluation of the business because the one spouse that owns the business will tend to devalue it and the other spouse who doesn’t own it might try to have a higher evaluation. But you either have to agree on a common evaluator, or get your own evaluations and then come up with a fair market evaluation. That’s a very, very important thing because I’ve seen certain people get divorced and get swindled really out of a lot of money due to a devaluation of the business.
Douglas Goldstein: On the one hand we often try to encourage people to have joint accounts. You say “Listen, you are married, you are bringing your life together and it’s time to bring your financial assets together too. And on the other hand, there is the reality of the real potential for divorce. How do you address that with clients maybe when they are about to get or are just recently married?
Should Married Couples Have Joint Accounts?
Ted Jenkin: It’s a really interesting question because I’m in the X and Y generation, and there are lot of gen-X’ers now that are getting married for the very first time later in life. Not only men but women who have built up their own financial assets and so I do recommend getting started slowly. You want to have one joint account so you can have some financial commonality together, start to learn how to be able to talk about money and share assets. But I’m not actually a big fan that if you get married later in life you put all your fund in a joint account for a start. You start slowly. You develop some behaviour and commonalities together and then you can figure out how to merge family finances in a more sincere way.
Douglas Goldstein: When a couple finds themselves getting a divorce they end up going in and out of court and they have legal fees which can really run up and wipe them out. What’s the best way to avoid that?
Ted Jenkin: The most funny thing in all the years of doing this is talking to men, especially men who say, “Yeah, I’ve talked it out with my wife and she is happy, and I think it’s going to be pretty easy to get this done,” and that’s when I start to hit the laughing button becomes it’s never easy to get it done. If you can find yourself a mediator and you can mediate the issues yourselves that will save you a lot of time, money, energy and potential impact on your children, if you have any. But if you are not going to have a mediator and you have separate divorce attorneys, I don’t think there is going to be any simple way to avoid arguing. There is always something picky to argue over in what I’ve seen in the last 25 years.
Douglas Goldstein: Let’s dive a little bit further about when people are getting married and they need to begin to plan for the future. Do you recommend that they sign a prenup?
Is it a Good Idea to Sign a Prenup?
Ted Jenkin: The fact is that I think it really depends. Apart from your financial situation, the more assets that you have, the more that this subject of having a prenup is going to come up. And like I just said this is not just for men. Now women who are 35, 40, or 45 years old may be getting married for the first time. Maybe they’ve built a million dollars of assets in their own name and so yes, I do think a prenup can be effective. There are also a lot of couples today who are same sex couples, and if the documents are done correctly they can be effective. You’ve got to have somebody that really specializes in doing prenups; they know the laws in your particular state and they can be effective. You just have to decide how much you want to potentially hit the emotional baggage when you set them up because sometimes a spouse will say, “Yeah, I’ll be okay with it if we have a prenup,” but the truth is they won’t. Sometimes I find that it ends up being more of an emotional conversation than a financial conversation.
Douglas Goldstein: But ultimately is it effective? In your experience does it work out and help solve the problems?
Ted Jenkin: If they are done right from a legal, technical goal, financial perspective – yes they can work. Have I found that it makes a solid marriage? No, there is always deep harbored feelings about money and they always come to the surface.
Douglas Goldstein: When you do financial planning for someone who is divorced or about to get divorced, how does that differ from when you are working with an ordinary married couple?
Ted Jenkin: There are a lot more moving parts because some people are divorced and they are still unmarried. Then, where it gets more complicated is that some are divorced and then they get remarried and you’ve got to consider what’s happening with things like child support or alimony. You know – as it pertains to both their cash flow and how potentially it can affect their income taxes. You have to consider what’s going to happen to things like college education planning. Will the husband or wife pay for it? Who is going to have to pay for it? Did the divorce documents specify what would happen? You have to consider what’s going to happen with the insurance. Are there insurance policies? Do they still have beneficiaries where the ex-spouse is still on the policy or has that changed? So you have to deal with more moving parts regarding the financial plan than you would for just a single individual or married couple.
Douglas Goldstein: It’s always seemed to me that the clients that I work with who are divorced are always going back to deal with their ex-spouses. They are never done; there is always a continuing negotiation – literally for years. Is that your experience as well?
Ted Jenkin: It’s funny that a spouse may be getting $1500 of alimony per month or child support and then you hear the husband a few years later say, “Oh I know she got a good job now and she is hooking up with some guy who has a lot of money. I got to go back and talk to her and see if I can knock this down to a $1000 a month,” and you are absolutely right, it happens all the time. Now I will say I’ve seen some cases where there had been child support or alimony and the other spouse after the divorce has done well and actually gives the other spouse more money. So I’ve seen it work out both ways in negotiations.
How Does Divorce Affect Social Security?
Douglas Goldstein: You mentioned something about Social Security. I know it is very important how people get spousal Social Security and even that it’s available to them if they are divorced. Can you give us some information about how that works and what are some of the risks?
Ted Jenkin: The big question is whether or not you are going to be married for 10 years, and if you are married for 10 years or more, you might be eligible to collect some Social Security even if you get a divorce. This is also funny, as a side note. Depending upon the state you live in and the alimony you are going to get, most states will have like a three for one rule that you might get one year of alimony for every three years that you are married. It’s very important because there are a lot of ex-spouses who were married for 15 years and then they get divorced. Then they are doing their own financial plan as a single man or woman and they may not even realize that they are eligible to collect Social Security down the road from their spouses.
Douglas Goldstein: How can people learn more about you and follow your work?
Ted Jenkin: If you want to get a brochure on five financial mistakes to avoid during a divorce, just go to www.oXYGenfinancial.net. We will get you a free brochure that you can look at so you can help yourself in your future. You can always follow us on our Twitter handle @oXYGenFinancial.