Strategic Money Moves for Your Post-Divorce Life with Financial Planner Stacy Francis
Planning Your Finances for Life After Divorce
Ending a marriage brings major financial changes. In this week’s episode of How to Split a Toaster, hosts Seth Nelson and Pete Wright talk with financial planner Stacy Francis about how to prepare your finances for a stable life after divorce. They also tackle a listener question on calculating living expenses post-split.
Stacy Francis is a certified financial planner who founded Francis Financial, a wealth management firm specializing in divorce and widowhood planning. She shares her expertise on financial models for equitable distribution, budgeting, managing real estate, and more.
Key Discussion Points
Creating a detailed post-divorce budget based on your new lifestyle. Look at current monthly spending and categorize as "needs," "wants," and "savings."
Formulas for dividing assets - no more than 30-40% should be real estate.
Tips for affording your marital home post-divorce or downsizing to renting. Prioritize kids' needs.
Keeping divorce from negatively impacting kids' futures. Communicate about college savings.
Becoming an authorized user vs. account holder on credit cards and loans. Check your credit report.
Withdrawing retirement funds penalty-free due to divorce, but taxes still apply.
Overview of Savvy Ladies, Stacy's nonprofit for vulnerable women.
Listener Question Addressed
How to calculate general living expenses and budget for life after divorce when household income is split.
Implications of receiving the house but little retirement savings in equitable distribution.
Key Takeaways
Create a detailed budget tracking current spending to plan for your post-divorce lifestyle.
When dividing assets, be strategic about taking retirement funds vs. cash.
Communicate with kids about how divorce will impact college savings and their futures.
Always check your credit report to see accounts you're attached to.
Savvy Ladies provides financial advice for vulnerable women.
Get essential tips on how to financially prepare for your next chapter after divorce from expert Stacy Francis on this week's How to Split a Toaster!
Links & Notes
Green Credit
Got a question you want to ask on the show? Click here!
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Pete Wright:
Welcome to How to Split a Toaster, a divorce podcast about saving your relationships from TruStory FM. Today, can you really bank on your toaster?
Seth Nelson:
Welcome to show, everybody. I'm Seth Nelson. As always, I'm here with my good friend, Pete Wright. We've talked about financial planning through your divorce, but how much thought have you put into planning for after your divorce? Just getting to the other side of the proceeding is one thing, but there's a lot of life left to live once the decree is signed and you'll want to have resources in place so that you can live it. Today on the show, Stacy Francis of Francis Financial joins us to talk about preparing for your post-divorce financial future and what you need to do to make sure you're ready. Stacy, welcome to The Toaster.
Stacy Francis:
Thank you.
Pete Wright:
Oh, Stacy, you come on an auspicious day. It's a big day for us here at The Toaster. We are going to do something we've never done, never done in the history of our eight seasons of this show. And we are going to open with a listener question that is just right for our conversation today. Is that all right?
Stacy Francis:
Yeah, I'm ready to go.
Pete Wright:
Ready to be thrown to it? Here we go. This question, Seth, comes from No Thanks, who would like to be kept anonymous. I hope their name isn't actually No Thanks.
Seth Nelson:
It's because you just outed them. Way to go to, Pete. Way to start the show.
Pete Wright:
I'm going take a flyer on that.
Stacy Francis:
I'll know who they are if I meet them now.
Pete Wright:
Yeah, exactly. Seth, I know you have talked about equitable distribution. I feel like No Thanks is rolling their eyes at you right there, Seth. I know you've talked about equitable distribution and you have a bunch of spreadsheets apparently, but do you have any quick calculations that might help me better understand my cost of living after divorce? I'm not great with numbers and I'd love to get a sense of how you help people compute the implications of the split on general living expenses. That is the question from No Thanks. I think it's a really interesting question because everything we've talked about in terms of finance, we've talked about some retirement, we've talked about... But in terms of financially planning for life after divorce, when you are accustomed to a certain financial arrangement in your marriage, I have to imagine is complicated.
Seth Nelson:
Well, that's one reason why we have Stacy on the show today, but also to No Thanks Anonymous when you talk about a bunch of spreadsheets, that is my love language. This is awesome, okay? But I want to just set the stage here a little bit because the question is saying one thing about equitable distribution then talks about living expenses after divorce. So I want to make sure our listeners are clear about what we're going to be talking about today. Equitable distribution is the division of assets and debts. Who gets what? When you talk about living expenses, that will fall under the alimony analysis, which is different in all the jurisdictions. So no matter what jurisdiction you're in, we're going to focus a lot on how we can save potential assets like how do we make sure that the divorce doesn't negatively impact your kids' college fund?
That would be equitable distribution. It will bleed into your expenses afterwards because then do you have to pay for the college or did we preserve the college fund? So when we're going through the conversation today, we're going to make sure that we talk about or make clear for our listeners what category we are in the outline, equitable distribution or alimony, but to answer the question directly, how do you determine what I need to live on after divorce?
To better understand the cost of living after divorce is all going to start with, well, what assets did you receive? Are any of them income producing such as a rental property? Does it really make money? Do you have a brokerage account that's going to earn you 4% interest and therefore you can skim some off the top and not lose your principal? Or are you just going to live off of your income? And if so, do we have to lower our standard of living what we spend our money on because we're going to have less money than we did before? Because two people with the same incomes living under one house is cheaper than living under two houses.
Pete Wright:
That's when things get hard.
Seth Nelson:
Well, you're going to have to make some decisions on where you spend your money. But the good news is we have Stacy here who can help us through all of this and she might even offer at the end of the show for this nice person to just come live with Stacy, and that will save you some money.
Stacy Francis:
[inaudible 00:05:01].
Pete Wright:
Do you have a room?
Stacy Francis:
But just so you know, I live in New York City, so space is at a premium, so I'm I'm just saying.
Pete Wright:
Okay. Stacy, one of the things that you'll find in this show particular probably is that anytime you're able to tell Seth he's wrong about something, I get a little notch on my podcast-
Stacy Francis:
Do you get excited, Pete?
Pete Wright:
My microphone stand. Yeah, just a little bit. Has he started lying at all? Where would you pick up with this question?
Stacy Francis:
Yes, he's started lying. Oh my gosh. This is like a standup comedy. I love it, especially because this is hard stuff, right?
Pete Wright:
Yeah.
Stacy Francis:
This is hard stuff. I mean, what we do, most people don't do, but I'm going to kind of talk through how we think about these things and then I'm going to also then give some suggestions that your listeners can have that they can use today. How do we figure this out? I was just talking to a potential client and she had questions. We've got four commercial properties, we've got our home and we've got this big portfolio. How should it be split? Can I stay in the home? Do we need to sell the commercial properties? Well, what we do is we actually run a financial model, a financial plan. That's how we answer it, and it includes the value of those assets, the potential growth, if they're sold, taxes, as well as expenses for our client, expenses for the kids, income if there's spousal support or alimony or child support, which is great.
Seth Nelson:
Okay, right now I feel No Thanks Anonymous' eyes glazing over.
Stacy Francis:
Yeah, so that's exactly... And that's why I have a job. So I'm a certified divorce financial analyst. It's helped me so much in my life. My husband, we are 23 years strong, partially because he's afraid of me, but I have to say it's great, but what we do makes the typical person's eyes glaze over. But there's another way to look at it, a couple formulas, and so here are some rules of thumbs of things that you can think about. When it comes to your spending post-divorce, the best thing you can do is actually to create that post-divorce budget. It's usually based on somewhat of the budget you had when you were married. Now, some things are going to change, go up, some things will go down. So in addition to the statement of net worth or the financial affidavit, whatever your state calls it, taking that next step to really line item, what life is going to look like for you after divorce is really important.
Seth Nelson:
Let's pause on that for a minute.
Pete Wright:
Clearly this is a hot question.
Seth Nelson:
Yes. So what we're going to do is put in the show notes for you is a blank financial affidavit-
Stacy Francis:
Love it.
Seth Nelson:
... that is in Florida. Check your local jurisdiction. We're giving this to you for informational purposes only. It will say a financial affidavit for someone earning more than $50,000. Now, I don't care what you earn, I don't care what your income is. The reason I'm putting that one into the show notes is because it has a more thorough list of potential expenses than the other standard financial affidavit. It goes into more detail. It still does not cover everything. So for example, it might not have articulated... It might just say memberships like gym membership.
Pete Wright:
I was just going to ask that, Seth, because this is the question I have. How far do you have to go into this before you feel safe, right? Before you feel confident that you can live? Do I have to have my Netflix subscription line item-ed in order for me to feel safe? Or is it just like, here's streaming services.
Seth Nelson:
Pete, I know about where you spend your money, you need all stream-
Pete Wright:
I just want to know where I can hide stuff.
Seth Nelson:
You need all streaming services because that is probably more than your mortgage.
Pete Wright:
It's not looking great. It's not looking great. But you see what I'm saying? That's the thing. As the rube on the show, I'm interested in, at what point when I hear somebody like No Thanks Anonymous who says, I'm not great with numbers, when is No Thanks going to feel confident that they understand the mental model of post-divorce?
Stacy Francis:
I love this formula. It works for I think a lot of situations. When you look at your spending, there are three buckets. Experts recommend that about 50% of your money should be going towards those non-discretionary, fancy way of saying things that have to happen. Basic food, housing, utilities. That's 50% of your spending. 30% of your spending then going to those nice-to-haves, really nice clothing, not just groceries, but in this one maybe dining out, traveling, and then the other 20% going towards savings or paying off debt.
Seth Nelson:
Okay, so hold on a second. Let's just go slow. We got people that are not good with numbers.
Stacy Francis:
Yep. So 50%-
Seth Nelson:
We've got 50%, we're good.
Stacy Francis:
The must haves. The must haves.
Seth Nelson:
Then we're going to divide the other 50%.
Stacy Francis:
Yep. 30% going to nice-to-haves, travel, vacations, and 20% towards savings and/or paying down debt. And when I say paying down debt, I'm talking about bad debt, credit card debt, high interest debt. I'm not talking about mortgages, things like that.
Seth Nelson:
Yeah, that would be in the must have.
Pete Wright:
So alimony, child support, must have?
Seth Nelson:
No, alimony, child support for this budgetary purpose, Pete, is going to be money that you are receiving. That's not talking about what we're spending. Right now we're starting on what do we spend?
Pete Wright:
Okay. But if you have to pay some alimony or child support, where does that go?
Seth Nelson:
That would be in the must-haves because that's going to be a requirement of the court.
Pete Wright:
Yeah, okay. Good.
Stacy Francis:
Yeah, or else CSC's coming after you. So yeah, that's part of that 50% must have.
Pete Wright:
Okay.
Seth Nelson:
Okay. Now, we're going to make this math really easy. Stacy, correct me if I'm wrong. There's different ways to do it, but one way to do it is you look at the following categories of statements, your bank statement and all your credit card statements because that's where your spending occurs. You get 12 months of that, and you will notice as you start looking through this, or if you have this on QuickBooks or any other financial planning software or budgetary software, you will notice patterns because people tend to spend their money on the same thing every month and you add them all up and divide by 12 to get your monthly budget.
Pete Wright:
It seems fairly simple to me, Seth. I feels like you've just told me something I could do.
Seth Nelson:
Well, we're here for you, Pete.
Pete Wright:
Just saying thanks.
Seth Nelson:
All right. Stacy, did I get that right?
Stacy Francis:
You got that right. I will give the listeners a little shortcut too, there are some great online budgeting softwares. Personal Capital has one. Mint.com. That's the one I use. And what's nice about that is you can connect it to a credit card, connect it to your checking account, and typically it uploads three in the months of expenses for you. And so then you can go through and just make sure they're categorized and you can even categorize them as this is a must-have, this is a nice-to-have. They've got little reports, they're super easy. So you can see, huh, how much must-have money am I spending? How much nice-to-have money am I spending? Does this make sense? I mean, am I within the 50% for the must-have and the 30% for the nice-to-have? And helping you keep track of it, because what will happen is that every day that there are new expenses, they'll come into that budgeting software and you'll be able to keep track. It's a really nice tool for really staying on top of your finances.
Pete Wright:
I'll also throw in just for the show notes, YNAB, you need a budget is transit.
Stacy Francis:
Love that one, Pete. That's a newer one, but it is so good.
Seth Nelson:
Whoa, Stacy, settle down there.
Stacy Francis:
You saw me get excited?
Seth Nelson:
Settle down there.
Stacy Francis:
You talk about this stuff. I get so excited.
Seth Nelson:
No, that's fine. That's fine. Just don't give credit to Pete. No credit to Pete.
Stacy Francis:
Oh, sorry. Okay.
Pete Wright:
Look, I actually had the great opportunity to interview Jesse Mecham, the founder of YNAB on another podcast, and it's just an extraordinary story and the model fit my brain in a way that no other budgeting tool ever has. And so I cannot stress how much I love YNAB. It's my whole family. We have a family account, so my kids each have their own budget that they manage themselves. It's really, really great.
Seth Nelson:
We'll put in the show notes.
Pete Wright:
Anyway, there we are exuberant about certain financial planning software. I want to dig into a couple of specific areas and just get some thoughts. Maybe this will be rapid fire or it'll take as long as it takes. We want to make sure that our financial challenges don't negatively impact our children's future. And I say future kind of in bold, italics, question, air quotes. Is that college fund? Is that some other financial setup we're trying to help them do? Getting their credit set up? Is there any consideration we have to have as parents about how our divorce can impact our children's future?
Stacy Francis:
Yes, yes and yes. There are a lot of considerations to think about. For the vast majority of families, the standard of living drops and children feel that. And so what I would say the most important thing for children during this time is to let them know that they're safe and saying, we're moving, but we're moving to a really lovely area. We're doing this so that we continue to be financially safe and you are financially safe and I'm financially safe. That is often one of the unspoken worries that children have. So that's really important that parents are on the same page to talk about that.
Seth Nelson:
And you can talk to them and say, that's current financial safety and it's immediate four or five years from now, longterm if they're younger, for you to be able to go to college because we all tell our kids or a lot of people do. We'll say, "No, we're going to help you with college. We're going to pay for college." But what you mean really is we're going to pay for college if we can afford it at the time. But no one ever finishes that sentence with 10 or 12 or 14 or 15 or 16 year old. And there's ways like God forbid you get disabled, maybe you don't have your income anymore and you can't pay for college. So having those conversations in terms that different ages that your children may be can understand and say, we might not be able to go out to eat as often. We might not be able to take a family vacation on a plane, but it doesn't mean that we can't drive somewhere. You have to put it in terms of they understand.
Stacy Francis:
Yeah, and I mean you all know this, but never badmouthing the other spouse, especially if you're the recipient of alimony or recipient of child support, not blaming them for the drop in standard of living because, again, children hear that and it scares them. Also, they're 50% dad, they're 50% mom. So when you're badmouthing the other person, maybe blaming them for the current financial situation, boy, that can create some big therapy bills and we all know we want to reduce bills, so not doing that is really important.
Pete Wright:
I imagine that is an ingredient to that parental alienation we've talked about on the show before, that old saw.
Seth Nelson:
And let me explain how this happens, "Mom, I want to go play this extracurricular or I want to do this at school or prom is coming up. Can I get a dress?" "Go ask your dad. I can't afford it." That's the wrong thing to say. The right thing to say is, let me talk to your dad. We'll figure out how much of a budget we can put towards this and we'll do the best that we can.
Stacy Francis:
Yeah, I love that. It's so healthy. It also is teaching them how you can work together in partnership and that that family-
Pete Wright:
Even when not in marriage.
Stacy Francis:
... yeah, even though they may not be married, there's still a family unit. And I'll piggyback on that, something that has really worked with my kiddos. And I have a 14-year-old, she just started high school this week and I have a 17-year-old who's about to finish high school this year. We started when they were age nine using a credit card called Greenlight. It's really a debit card. They have learned how to manage money using that card, and there's a portion that is available to spend, a portion for savings. As a parent, you can add money to it. So their allowance goes to this. That's where their allowance immediately goes to it, and then they can then come to us and say, I really want to buy this. Can we move X amount from savings into spending? I'll tell you how wonderful it is because these two really think about spending in a different way because it's their own money. And their allowance is not that great.
Seth Nelson:
Hope they're not listening to the show. They'll be like, I want a raise.
Stacy Francis:
Yeah, I know.
Pete Wright:
They're big fans of the divorce podcast circuit though, so don't worry about it.
Stacy Francis:
They'll be like New York City, wait, what do you mean New York City?
Pete Wright:
I mean, so much of this though, it sounds so great because it gives the kids, like when we talk about feeling safe, it gives them agency. It teaches them agency and where their line of agency and accountability exists, and I have to imagine that that goes a long way toward building the relationship between parent and child too. That seems very powerful.
Stacy Francis:
Can you imagine if your parents really taught you about budgeting and taught you about cashflow management when you were that age? Wow. I feel like we'd all be further ahead. And for them, we've taken it a step further. So of course, Greenlight is great. There are some other great debit cards out there for kids too, but in addition, we got them investing. So when they are getting all that money for whether it's birthdays, holidays, bat mitzvah, bar mitzvah, even different gift cards, we will talk to them about can we take a portion and invest it? And bless them, they said yes. So now they each have a brokerage account, a UTMA.
Pete Wright:
What is a UTMA?
Stacy Francis:
It's a Unified Trust for Minors Act. It's a type of account that you have for a minor, and so we co-own it. I am on that. It's myself and then my son, and then when he becomes the age of majority, some states it's 18, others, it's 21, that account is solely his. Those two, my son and my daughter have invested as much of their money from holidays and birthdays to the tune where they each have about $5,000. Interestingly enough though, Samantha, who is younger, is outperforming Sebastian.
Seth Nelson:
Love it.
Stacy Francis:
And it's fantastic.
Pete Wright:
Did you convert your kitchen into a brokerage floor?
Stacy Francis:
I hear them saying that so-and-so is doing better. He's doing a little better this year because he invested a huge chunk in AI and I was like, "That's very risky." He's like, "That's fine, mom, I'm young. I'm 17. I'm not living on this tomorrow." I was like, "You're right. That's a point." And then Sammy, she invested it in the Women's Leadership Fund leader. I'll tell you, unfortunately, the Women's Leadership Fund has underperformed the AI Artificial Intelligence fund. So I heard her say, "I hate women's rights." I was like, "What?" She goes, "I mean, I hate the Women's Leadership Fund." I was like, "Let's get that straight. Let's get that straight, okay, because they're two very different things."
Pete Wright:
Two very different things.
Stacy Francis:
But what's great is they're learning about investing, right?
Seth Nelson:
At least you're not saying, my son went to roulette, right? He didn't put it all on black.
Pete Wright:
Favorite number is 21.
Stacy Francis:
Don't put it all on black. Yeah, so they primarily are the S&P500, which for all of you listening is an index that covers the 500 largest stocks that trade, and it's a great, very diversified approach. So that's primarily, but then they do research to pick these different funds for smaller amounts, but it's great because it really engages them. They decided to invest in Bitcoin and then lost 30% the next day. I thought that was a great opportunity for them to learn, right? Let's learn that now.
Pete Wright:
It's a good lesson.
Seth Nelson:
But we got listeners like, "Are you kidding me? I'm worried about making my bills and you're talking about how these kids are going to invest."
Pete Wright:
Investing in Bitcoin.
Stacy Francis:
I know, I know.
Seth Nelson:
So listen, when people are coming to you and they're about to go through a divorce, like your potential client that had, you know, it seemed like a lot of different options, some people have less options, right? They're W2 employees, they have a mortgage, they have a house. They both had to qualify for the mortgage. What can we share with them on the best way to approach the division of assets, which then will ultimately determine what they need in that 50% bucket must-haves for housing, food, car payment, car insurance, health insurance, life insurance, disability insurance, cell phones?
Stacy Francis:
Yeah, every situation has its own DNA, but there are some formulas that you can use just for what should be your asset split. The biggest question most people have is around real estate and how much real estate should I own? We typically advise individuals to have no more than 30 to 40% of their assets in real estate. New York, we're a pretty expensive place to live. So often we will see that be higher. We'll see that may be even as much at 50%.
Seth Nelson:
Here's a question then. So what happens when you're getting divorced, you have equitable distribution, the division of assets and debts? You can't take all of your assets and all of your debts and split them evenly. Let's say you're the perfect 30% with housing, that's your real estate. You had X number of dollars in brokerage accounts. You had X number of dollars or percentages in retirement. You can't do that because you're not going to divide your house in half.
Stacy Francis:
Yeah, you can't.
Seth Nelson:
So what happens a lot when you get divorced is your allocations will be out of whack. You might get the house, which might be your main asset. Let's say it's got $300,000 of equity and there was a retirement account that had $300,000. You get the house, your spouse gets the retirement account. You both are now out of whack. If you go to a financial planner, because they're going to be like, oh my god, you don't have any retirement. It's all in real estate. The other financial planner is going to be like, oh my god, you have everything in retirement. You have no real estate.
So you need to get comfortable with the fact that if you're going to divide your assets that way, you're going to be an out of balance portfolio that you can then start putting money hopefully when your income rises or you cut down on your spending or you figure out a way to really contract and put more into savings to eventually get that back into balance. That's one option. Stacy, correct me if I'm wrong. The other option is you stay in balance, but you're going to live in a smaller house now because you don't want to be house poor. You want to still have retirement.
Stacy Francis:
Yeah. Yeah.
Seth Nelson:
And so you're going to have to make that choice.
Stacy Francis:
It's all about different choices. The first scenario where you take the home and you don't really have any other assets, that could be okay if you are in the situation where you're able to save outside of that, but you're not going to be okay if, God forbid, the upkeep of that house is so significant that your income is not going to cover it and you have no other assets to tap, which I have seen happen.
And then someone finding themselves in a really difficult position of having to sell that property sometimes even in short order. So it's thinking about, can I afford the real estate? That's usually the biggest question. Can I afford the real estate with the income I have? Can I continue to save for my future? And if not, then what type of real estate can I afford? What size home should I even rent? And sometimes renting, I'm a big proponent of renting, especially after there's been a divorce because it could be that you just want to stay in the school district for three more years till your child graduates high school. And so buying a home that you're going to be selling in three years, you're going to actually potentially be losing money after all the fees. So really just thinking about, can I afford this? Is this the right mix for me?
Seth Nelson:
And on that, that kind of goes back to what Anonymous was asking us on the question is I want to get a sense of how do I compute the implications when we split the general living expenses? Well, what we're talking about is after your divorce, you're going to have your general living expenses and your former spouse will have theirs.
Pete Wright:
These are all new living expenses.
Seth Nelson:
That's right. And you get to make choices on your living expenses. A lot of people say, I just want to keep the house. I want to keep the house. I want to keep the house for the kids, and it's for the kids that I will then focus on. I am less interested in what you want to keep as your attorney. I'm more interested on why you want to keep it. Because if I know the underlying reasoning, then I can work the problem. To Stacy's point, I want to keep the house because I want to keep the kids in this great school district for three more years. Okay, is there another way to keep them in the school district other than the house? The answer might be no. The answer might be there's no way. We have three kids, either a girl and a boy, and non-binary. They are not going to share a room that's not going to be healthy for this family.
We need a four bedroom. I can't rent a four bedroom for the mortgage that I'm paying. There's other complications. But at least now we're talking through that. And then maybe the issue is, can we get an agreement to keep the house for three years, discuss how it's going to be paid for, and then sell it at the end? And that way we don't need to live in the school district. Everyone will get paid out, the two spouses, at the end of the three years. So there's ways to work these problems, but that's how you're going to then figure out what your budget is going to be. And it's always a moving target because you don't really know what you're going to get yet.
Are you going to have retirement? Are you not? Maybe you're unemployed because you've been a stay at home parent and now you're going to get back into the workforce. So the more you can do this stuff earlier, which is hard, go look for a new job when you're getting divorced and you're raising three kids and trying to hold your life together, and it's fricking crazy, I get it. But the more information you can get on your finances, the earlier in the process, the better because then you're not dealing with what ifs.
Pete Wright:
I feel like so much of this question and where we start talking about financial questions actually brings in a very healthy dose of practical and logistical questions. And it makes me think, I have a dear friend who was divorced five years ago and ended up moving into an apartment, didn't get the house, and is one week on, one week off with his two boys who are growing rapidly and he could only afford a two bedroom. And so when the kids come over, as they grow, he moves into the living room. His logistical answer is to sleep on the pullout couch every other week. And him talking about it sounds like it was such an easy solution because right now, this week he's texting us saying, "I just was able to afford now. I've been able to bring that balance up," not in so many words, "to the point where we can now afford a place where I have my own bedroom for the first time in five years since my divorce." That is a massive practical win that has deep financial choice roots.
Seth Nelson:
Pete, I lived that life. When my son was little, we got divorced. He was two and a half. I moved into what he affectionately called the broken house where I had my own bedroom. But literally the house was no washer, no dryer, no garbage disposal and broken like, hey, don't step on that board. You might go through. Now, a friend of mine owned it at the time. This was 17 years ago. He gave me a great deal. I am forever grateful that he helped me. When I saved up some money, I moved into a one bedroom apartment in a nice neighborhood, and there was a half wall between the living room and the dining room. And the dining room was right outside the bathroom. There was a one bedroom, one bath, and then there was the bedroom. My son had the bedroom. It could fit my bed, just fit into the dining room, and that's where I slept.
Pete Wright:
Yeah. I mean, it gets back to that. The choices you have to make aren't always the financial choices. They might have financial results, but the practical, what's right in front of you right now choices, are we might have to live a different... This gets to how we're living our lives.
Seth Nelson:
Right. And let me tell you, we've had shows about post-divorce dating. If someone came over and they're like, "are you sleeping in the dining room?" I'm like, yeah, do whatever I need to do for my kid. He needed his own bedroom. And if you don't like that, then you're not for me.
Pete Wright:
Right. Again, practical choices.
Seth Nelson:
There we go.
Pete Wright:
Yep. Can I pivot? Because this is... I think just as we get toward wrapping up, I definitely want to talk about credit and credit scores. What are the implications on our credit scores of a divorce and how do you go about rebuilding?
Stacy Francis:
One of the biggest unfortunate surprises many of our clients have is that they've had credit cards and we go to look at their credit score and it's really not that great. And we look at their credit report to see, well, why is that? We find out that yes, they have these credit cards, but they're co-signers, they're not actually the account credit card owner. And so we have some big work to do and we have to start to build their credit score.
Seth Nelson:
That is a common misconception on being a co-signer and not yours. Can you break that down please?
Stacy Francis:
What ends up happening is someone will take a credit card out in their name, but they'll say, you know what? I want my spouse to also be able to charge on this credit card, and I'd like them to have their own credit card too. Can you make them a co-signer? When the bills are paid and they're paid on time, the credit history, all of the history, the on-time payments, it goes to the person who took out that credit card.
Seth Nelson:
So I'm going to break it down. You have a husband who opens a credit card and he says, I'm married, love my wife. I trust her with money. Everything's great. She needs a credit card on this same account.
Stacy Francis:
Yep, to make it easy, so we can see what our expenses are together.
Seth Nelson:
She's going to have her own card with her own credit card number, her own little pin number. I'm going to have my credit card with my credit card number and my own pin number, but technically this is one account and it's in the name of the husband.
Stacy Francis:
Yep. And he gets all of the actual credit history.
Pete Wright:
All the juice.
Stacy Francis:
All the juice. And so all of a sudden she's finding herself getting a divorce and struggling to be able to rent an apartment, struggling maybe even to get a cell phone in her name. Credit score impacts what you pay for insurance. Even they'll look at your credit score at some job interviewing situations. So it's a big number, a very important number. And so for a lot of individuals, building their credit is really important.
Seth Nelson:
So the way you do that is you open a credit card where you are the account holder?
Stacy Francis:
Correct. You are the account holder, and you start to charge and pay it off on time at the end of every single month. And over time, you're going to start to see that credit history build.
Seth Nelson:
So I will share with you, I have a 19-year old who just went off to college. He has an entry level American Express card. The way that works is he goes, "Dad, what's my credit limit?" I said, "American Express doesn't put a limit." And he goes, "I can buy anything I want?" I said, "Nope, because American Express monitors how much you spend and then how much you pay off," because he's supposed to pay it off, and he does every month, but he has such low spending because he's never spent before, and his income wasn't very high. So they really clamped down on him. He will get text messages. If you don't make a payment, your next payment might be declined. And he's like, "Dad, I just went out and got some fast food. This isn't a huge purchase." And I'm like, "Well, because they have their algorithms that keep it low." So he goes online and he'll pay 20 bucks and it pays it down, but that's how he's building that credit up.
Stacy Francis:
Yep, slowly over time.
Seth Nelson:
Over time.
Pete Wright:
I don't think I've ever consciously thought through the implications of the co-signer relationship to the account holder. I've been married 24 years and my wife's credit has always been worse than mine. And I just am realizing it's likely because all the credit accounts that we've ever had have started in my name because we just never thought about it. That is fascinating to me. Is it such a thing where there's those accounts, let's say we both get the same account, do there exist accounts where there are co-owners or they're just two separate credit accounts, is what we're talking about?
Stacy Francis:
Typically, there would be just two separate credit card accounts. And before we jump off this topic, I want to make sure we talk about another piece. This is after the divorce too, but some agreements, Seth, you'll talk about debt, and if there is credit card debt, maybe it's split 50/50, but what we have to be very careful of is that if your name is on that credit card and there's not a payment made by your ex-spouse, even though there's agreement that says-
Seth Nelson:
When you say on the credit card, you mean you're the account holder?
Stacy Francis:
You're the account holder, but your spouse is responsible for half of that debt, and Seth, you've written into the settlement agreement that that ex-spouse needs to pay 50%, but that ex-spouse decides that they're just not going to. What ends up happening is that Visa, MasterCard, American Express, are going to come after the credit card title holder, whoever owns that credit card, even though you reach out to them and you show them the beautifully drafted agreement that Seth wrote and has been signed by both of you very clearly saying that your ex has 50% liability for this.
Seth Nelson:
They don't care.
Pete Wright:
They don't care.
Stacy Francis:
They don't care because the contract you have with that credit card company as the account owner trumps. And I had this happen. One of my clients, she came to us, is actually through Savvy Ladies, the charity that I started, where we work with women who are financially vulnerable, she was left on the hook for a hundred thousand dollars for a credit card that her husband had run up significant debts on. And part of the agreement was that he was to pay all of this off, and he did not, and they went after her.
Pete Wright:
And she was on the hook for it. Oh my goodness.
Seth Nelson:
Yeah. So here's some ways to prevent this, okay? One, even if you're married or if you're going through a divorce, pull your credit. You can do it for free. There's different ways. Freecreditreport.com. Stacy, you might have some others. We'll put in the show notes. But you should be looking at your credit report because you're going to find your account holder names and what's going on on those accounts. The second thing is, when you're talking with your lawyer, check your local jurisdiction, check with your lawyer. If you are the account holder, you want that debt to be on your side of the ledger that you're responsible for paying, and then you want to get another asset to offset that because you don't trust him. He's not going to make the payment. He's going to kill your credit. They're going to come after you. Now, and that was very nice of Stacy to say how beautifully drafted my legal documents are.
Pete Wright:
They're impeccable, really.
Stacy Francis:
I'm assuming they are.
Seth Nelson:
They're not like bedtime reading or anything. But the other thing we put in our agreements is if I am responsible, Seth Nelson, for paying off this debt, I will indemnify and hold harmless my spouse in case the company comes after them. So for whatever reason, we have that in the agreement because what happens is if your spouse is supposed to pay it and they don't, and the credit card company comes after you, in the divorce decree, you can still go after your spouse. Now, you can go after them anyway because it's a divorce decree. You should be able to get it.
But it's just an added benefit that I put and I always put in there, including attorney's fees and costs. So when you have to hire me to go after them to do something they should have done, we already have it in the contract that you settled on that they'll have to pay it. But Stacy, this is a very good point, and you have to pull your credit report. Do not trust your spouse when they say, oh, it's in joint name, because when it says credit card joint name, I'm like, "No, it's not. Someone's the account holder." That's how we're listing it.
Pete Wright:
Wow.
Stacy Francis:
And I will just piggyback on why getting that credit report is so important. You should be doing that as you're filling out that financial affidavit or statement of net worth. Because there are situations where we found people to be surprised that there is a certain type of loans on their credit report that they had no idea that their name was attached to. We've seen that with outstanding home equity lines of credit. We've seen that with actual credit cards being taken out in their name. This is all like the naughtiness behaving badly, I feel like reality show, but it can happen.
Seth Nelson:
Your spouse has your social security number. They can do it all online, boom, boom, boom, done. But there are accounts that are joint, you could have debts that are joint, your mortgage could be joint, your home equity line of credit could be joint. Your bank accounts could be joint, the car could be jointly titled. There are things that can be joint. Usually with credit cards though, it's one person's the account holder. And that's why we're making that distinction.
Pete Wright:
Fascinating. Because I've never thought of it that way, any other giant account types that bite people because of the nuance of ownership?
Stacy Francis:
You know what? This is a different topic, but I would just say a lot of individuals will see them. I've been at home all my life. I haven't built any retirement. I'm not going to be able to add to retirement. I want to take all the retirement accounts. You can add to your retirement. You're still working. You've got another 10 years. And that stay-at-home spouse who now has the a hundred percent retirement, all of a sudden needs money to pay the electric bill and goes to take money out of the 401(k) or the IRA, whatever structure that is in, well, of course has to pay taxes, ordinary income, which a dollar comes out 40 cents to the government, but then also finds out, oh my God, there's a 10% penalty because I'm under age 59 and a half.
So from that perspective, really important to think about the different assets that you're taking. And while that sounded like a great idea, let me build up my retirement. I'm not going to really be able to go back to work and I haven't built my retirement. You can do that again, isn't necessarily the best thing.
Seth Nelson:
Right. It's great if you're not going to touch it, but there's a nuance here that I think we should point out. Check your local jurisdiction. I'm even going to add something to this, Pete. Check with your accountant on what I'm about to say.
Pete Wright:
Oh, okay.
Seth Nelson:
In a divorce, you can sometimes pull out money from your 401(k) or IRA. One time you will be taxed on it if it's a taxable IRA or 401(k) because some IRAs are not taxable. But if it is, but you won't have to pay the penalty as a one-time distribution during a divorce or because of a divorce. So that's a way where you can say, well, wait, it's all in retirement, but we can pull out some cash without the 10% penalty because I'm not 59 and a half, but we have to account for the tax that you're still going to pay. You're not getting away from that, but it's a way to get some cash out and still maintain that retirement account.
Now, the other thing, when you're distributing assets, check your local jurisdiction, but if there's a hundred thousand dollars in cash and there's a hundred thousand dollars in a 401(k), and you ask me which one I want, I'm going to take the cash every time because when I pull money out of the 401(k) in the future, I'm going to be taxed on that. So you want to discount that 20%, 30%, 40%, whatever it is to say, look, that's not really a hundred thousand dollars. It's only 60,000.
Pete Wright:
Yeah, once it's taxed.
Stacy Francis:
The biggest advice I can give is that an account that may have the same dollar amount is after tax, after Uncle Sam comes and the IRS says, give it to me, can be worth 10, 20, 30, 40% less. So taxes are super important as you think about that settlement agreement.
Pete Wright:
Stacy, thank you so much for being such a fantastic resource for this conversation today, and we want to hear a little bit about what you are doing. First of all, you already brought up Savvy Ladies, which is a fantastic organization. Tell us a little bit about your firm and what you do.
Stacy Francis:
I started Savvy Ladies first when I was 26. It's a nonprofit working with financially vulnerable women, giving them financial advice, financial support, and one-on-one support through Certified Financial Planners.
Pete Wright:
I was useless at 26, by the way. That's incredible.
Stacy Francis:
Yeah. Well, I know it's not what your typical 26-year-old does, but I've been very passionate about particularly helping women. My grandmother, someone who was so close to me, she passed away because of domestic violence, and I grew up seeing that, and she shared that she felt financially trapped. So that's what really propelled me to start this charity in her memory. And the year after I started Francis Financial to pay for the charity, and so now it's been 20 years or so.
Seth Nelson:
Which is not really good financial planning, I might point out.
Stacy Francis:
It isn't, but it feels so good because I have this wealth management firm, Francis Financial, where we work with women going through divorce or their spouse has passed away. Those are our clients and really planning for her future. Most of our clients have a good amount in assets. They're coming to us and they might have a million dollars, they may have $2 million. So it feels really good to do some of that complex planning for them, but it even feels better to know that they're Savvy Ladies, that anyone, whoever you are, there's a place for you to get the advice that you really do need.
So I feel like I'm the most blessed woman on the face of this planet because I get to work with people who are really struggling financially, who desperately need this work, and then also work with other women who have finances, but are making decisions that are impacting the rest of their life and sometimes even potentially could be making decisions that cause them to be a Savvy Ladies' client if they're not careful, right? Because a million dollars sounds like a lot of money, and I agree it is, but it isn't a lot of money if you're spending $200,000 a year.
Seth Nelson:
Yeah, it's going to burn through pretty quick on that burn rate.
Pete Wright:
Yeah, especially if you're investing it all in Bitcoin. Come on, ladies.
Stacy Francis:
I know.
Pete Wright:
Enough with the Bitcoin.
Stacy Francis:
I know we have a coffee cup that says, it has the Bitcoin symbol and it says, "I told you so." And it's funny because I first bought it for my husband because he bought Bitcoin when it was $10 a Bitcoin.
Pete Wright:
Okay.
Stacy Francis:
So I bought it for him for the purposes of saying, you were right, we should have gotten more, and then now we use it again where it was like when it was at that $50,000 a Bitcoin we should have sold. So then I carry it now again of I told you we should have sold. I told you so. We've used that coffee cup for quite a few years now.
Seth Nelson:
Wow.
Pete Wright:
Context-sensitive drinkware.
Seth Nelson:
Yeah, exactly.
Pete Wright:
Well, Stacy, you're great. Thank you so much for hanging out with us and talking to us about divorce finance, and I hope folks get through this episode. I know there's a lot, but check those links. Check the links for the resources. Now, Seth asked me to actually do the sample financial affidavit, so it's all written in crayon and sharpie, but I think the numbers are all zeros, so they should be okay, but definitely check the-
Seth Nelson:
But they're all red numbers, which is not what you want. But also a shout-out to No Thanks Anonymous for the first time ever on the show, starting with a listener question to launch this. Hope we gave you some good advice there to try to figure out what your post-divorce spending and living expenses will be. Check out those links in the show notes.
Pete Wright:
Absolutely. Thank you everybody for downloading and listening to this show. We sure appreciate your time and your attention. Don't forget, if you want to be like No Thanks Anonymous, hit up howtosplitatoaster.com and click the Ask A Question button. It's a great way to get your question right in front of Seth and maybe in the front of the show. Unprecedented on behalf of the fantastic Stacy Francis and Seth Nelson, America's favorite divorce attorney, I'm Pete Wright. We'll catch you back here next week on How to Split a Toaster, a divorce podcast about saving your relationships.
Outro:
How to Split a Toaster is part of the True Story FM Podcast Network, produced by Andy Nelson, music by T Bless and The Professionals and DB Studios. Seth Nelson is an attorney with NLG Divorce and Family Law with offices in Tampa, Florida. While we may be discussing family law topics, How to Split a Toaster is not intended to, nor is it providing legal advice. Every situation is different. If you have specific questions regarding your situation, please seek your own legal counsel with an attorney licensed to practice law in your jurisdiction. Pete Wright is not an attorney or employee of NLG Divorce and Family Law. Seth Nelson is licensed to practice law in Florida.
