It's fitting that as the country celebrates Independence Day this week, a new study documents the experience of more than 1,700 women going through the process of divorce. While many face financial obstacles in living on their own, nearly half of them view it as a positive opportunity to reinvent themselves.
Both the source of the study and some of the recommendations are surprising.
Worthy, an online auction marketplace for pre-owned diamond jewelry, joined forces with Laurie Itkin, a certified divorce financial analyst, to survey more than 1,700 women from across the country about their financial experiences before, during and after divorce. Participants in the Financial Fresh Start study were divided into three age groups (18-34, 35-54 and 55+) and three stages: divorce on the horizon, in the midst of divorce and "divorced and determined."
When asked about their financial priorities during marriage, 51% of the women said they focused on paying the bills while only 14% focused on saving for the future. One in five of the survey respondents, who included Worthy clients, newsletter subscribers and social media followers, admitted to relinquishing all responsibilities for managing the couple's long-term finances.
Being in the dark during marriage, often led to some
nasty surprises after divorce, the soon-to-be released report found. Across all age groups, the majority of women said their biggest financial fear when it came to getting divorced was living on one income, followed by the cost of divorce.
Divorced women are more likely to live in poverty and receive public assistance than their male counterparts, according to the U.S. Census Bureau. To face the challenge of living on one income, Ms. Itkin suggests that more women need to discover ways to leverage their talents — whether that means going back to work, going to school or launching an online business — so if divorce happens, they are prepared to support themselves.
For women who are contemplating divorce, Ms. Itkin recommends taking a couple of years to develop an exit strategy. If women are blindsided by a spouse who requests a divorce, they need to accept the harsh reality that child support eventually ends and alimony awards are rarely for life.
In addition, new tax rules affecting divorce that take effect next year could potentially reduce future alimony awards as that money would no longer be tax-deductible to the former spouse who makes the payments.
As divorce brings about many changes and new realities for women, many are pursuing professional opportunities again. Over half of the women surveyed (54%) made a major career change following divorce, including reentering the workforce, switching jobs, going back to school or starting their own business. Overall, 91% of women see divorce as an opportunity to focus on their career, the study found.
"I always encourage women — even those who are happily married — to work and further their careers despite the lack of affordable child care," Ms. Itkin said.
Only 9% of women were able to stay at home post-divorce, suggesting that many women urgently need to generate income after divorce. That is in stark contrast to married women with children, nearly a third of whom do not participate in the labor force, according to the Bureau of Labor Statistics.
"The findings in the Worthy Financial Fresh Start Study are consistent with our clients' experience," said Cheryl Glazer, president of the Association of Divorce Planners. "This study touches upon the
key issues that are critical part of the divorce conversation."
With longer average life expectancies, it is important for women to start investing so they don't outlive their money. Divorced women could turn their no-longer-needed engagement ring into seed money to establish a financial nest egg. However, 64% of the participants surveyed did not think of their ring as a financial asset.
"Some women mistakenly believe their ring will increase in value over the next 20 years," Ms. Itkin said. "That is unlikely to happen."
But if a woman sells her ring for $3,000 and invests the proceeds in an individual retirement account that earns a 7% annual rate of return, in 20 years, she will have about $12,000.
Even better, if a woman generates a lump sum of $2,000 by selling her ring and earns extra income of $400 per month through a side business and transfers the money each month into an IRA and selects an investment that returns 6% annually, her retirement savings would be worth close to $300,000 in 25 years.
It turns out that a diamond could prove to a divorced women's best friend after all, by kick-starting her financial independence.
