Feelings and the Financials of Divorce

Going through a divorce is an emotional process, even for the spouse who requested it, and even when amicable. It is the end of a stage of life, and endings are often accompanied by grief. The spouse who didn’t ask for or want it may also feel anger and resentment. Sometimes there’s relief too, which may not have been expected. All these feelings, and the others that might arise, are important to identify and understand. A good therapist or counselor may be helpful as well.

    In addition, we humans come hardwired with cognitive biases that affect rational thinking. One of these biases is loss aversion, where a loss is more keenly regretted than an equivalent gain is enjoyed. For example, a loss of $100 triggers more pain than being rewarded with $100 triggers happiness, even though the amounts are the same. Being aware of these cognitive biases can help with decision making for those able to identify when bias is in effect.

    It’s important to know when emotions and biases are at work when it comes to personal finance in general, and divorce in particular. Unfortunately, both of these tend to oppose good money decisions. For example, loss aversion causes investors to want to sell out of positions when they’re dropping, rather than staying invested and waiting for the market to rise again. In a situation such as divorce, it can cause the desire to hold on to an asset that will not be helpful in the long term.

    Divorce involves a loss of control, particularly for the spouse who didn’t ask for it, which can touch off a number of emotional issues. Those who are not aware of their emotions or don’t realize when they are taking over decision-making may end up in a bad situation down the road - divorce is a common reason for filing for bankruptcy.

    A great, though dark, comedy movie that illustrates how emotions take over is “The War of the Roses". Neither spouse wants to give up the house: she found it and made it their home, and he paid for it through his hard work. They don’t consider selling it and dividing the proceeds since they can’t agree on who gets it, and end up trying to take revenge on each other using the house. Spoiler alert: it does NOT end well.

    Finances are handled best when they’re handled objectively. Does the divorce settlement work five or ten years down the road? Will the spouse who wants to keep the house be able to afford the payments and upkeep even after spousal support has ended? It’s hard to look at the finances without prejudice, but that’s how best to make sure the division will work now and in the future. If the emotions are too intense to think clearly about a specific issue, don’t make the decision right then and there. Ask for more time, so feelings can be dealt with and then set aside. The process shouldn’t drag on forever, but cooling off for a day or two often prevents emotional decisions..

    In other words, be as clear-headed as possible when looking at the financials of divorce (and finance in general). Don’t let your current emotions derail your future.