The financial dimension of a divorce can prove to be a complex and often underestimated area. The experiences of Sallie Krawcheck, a money expert and co-founder of the investment platform Ellevest, offer valuable insight into the pitfalls to avoid in such situations. But more about that in the following post.
Facing the challenges of a divorce in her 20s, Krawcheck experienced a period of emotional and financial uncertainty, which she detailed in a conversation with “CNBC Make It” and in a post for her company blog. In her reflection on her personal experiences during her divorce, Sallie provides insights into the challenges she faced as a woman in the male-dominated world of finance. A central element of her story is the search for adequate support in this difficult phase of life.
Mistake number one: poor negotiation skills
The challenges Sallie Krawcheck faced during her divorce were compounded not only by her divorce attorney’s limited understanding of financial matters and the lack of specialization of financial advisors, but also by a pervasive issue: the difficulty of negotiating hard enough in divorce negotiations, as she points out to CNBC. This difficulty is highlighted in the results of a 2023 Harris Poll survey in collaboration with Axios, which shows that only about 20 percent of married couples in the U.S. have a prenuptial agreement, a tool that could significantly simplify many of the negotiations involved in a divorce.
In an ideal world, a prenuptial agreement would clearly define what assets each partner will retain after a divorce, thereby avoiding lengthy negotiations. However, since this is rarely the case in reality, most couples will have to reach an agreement through negotiations with their lawyers and possibly in court, it said. Krawcheck emphasizes that not being tough enough in these negotiations is a common mistake.
Social stigmas can play a role, especially for women. Krawcheck addresses how women who negotiate forcefully can often be perceived as mean, aggressive, or unsympathetic. These societal prejudices often lead to women feeling undervalued and limited in their demands during divorce proceedings. “Look at a woman standing up for herself and all the internalized messages of a patriarchal society come through. She doesn’t want to be too aggressive and she doesn’t want to upset the others,” explains Krawcheck. She also notes that women who make financial demands are often portrayed negatively in the media.
To counteract the tendency for women to feel undervalued in divorce negotiations, Krawcheck recommends an empathetic approach. She suggests putting yourself in the shoes of someone close to you, such as a best friend who is going through a divorce, as she explains. By imagining yourself fighting for this person, it can become easier to stand up for your own needs and desires. Krawcheck highlights that women are particularly adept at negotiating on behalf of others, and it can be impressive to see a woman stand up for her best friend.
Mistake number two: lack of information
In her conversation with CNBC, Krawcheck also points out the importance of a comprehensive understanding of your own financial situation, an aspect that is particularly important in divorce. In her argument, she refers to a 2019 study by UBS that revealed that more than 70 percent of women face unexpected financial losses in the event of a divorce or the death of their partner. This underlines the importance of becoming fully informed about all financial matters, including all assets and debts, before starting a divorce.
Krawcheck points out that a common mistake is going into negotiations without full knowledge of where all the money is. This ignorance extends not only to obvious assets such as the jointly purchased house or investment accounts, but also to other financial aspects, the expert continued. She advises thinking carefully about the possible changes in household income after a divorce, considering the tax implications of the assets received, and considering how residence and associated costs might change.
The recommendation that comes from Krawcheck’s comments is to work with a professional to gain a complete understanding of all options. This can ensure that during separation negotiations you are not in the dark about what assets exist and what you may be entitled to.
Mistake number three: putting off financial preparation
Krawcheck continues to emphasize the tremendous importance of active involvement in financial decisions during marriage. She strongly advises against leaving all financial decisions to your partner and emphasizes the need to build a personal emergency fund. This recommendation is based on their recognition that a well-prepared financial basis is invaluable in times of crisis.
The expert tells CNBC that at every stage of a marriage, it’s smart to take steps to ensure your own long-term financial well-being. This includes being involved in joint financial decisions and management, as it goes on to say. She reflects that she herself made the mistake of letting her first husband handle these matters alone and explains that money represents a form of power within a relationship. She emphasizes that involvement in financial decisions can not only strengthen the relationship, but also help protect against financial abuse, which often occurs in domestic violence cases.
In addition to joint finances, Krawcheck recommends, especially for women, taking precautions in the event of a divorce or even the sudden death of a partner. Investing in an individual emergency fund and ensuring your own retirement provision are essential steps. Krawcheck says whether or not these accounts are discussed with your spouse should be considered carefully. She warns that it can be worrying if you think you have to do these things secretly.
Ultimately, the moment a marriage ends and a new chapter of life begins, it is crucial to protect one’s financial well-being and take into account any significant changes in the overall financial picture. Krawcheck therefore recommends checking insurance policies and adjusting them if necessary in order to exclude the former spouse or to ensure your own insurance coverage. Finally, she also advises keeping an eye on your credit score and rebuilding emergency funds and savings if necessary.
D. Maier / editorial team finanzen.net