Friday, January 5, 2007

Recovering Financially from a Divorce

I went through a divorce which started in 2003 and last about 18 months before the final decree was issued. It was the most financially stressful period of my life. I lost about 25 lbs (good for some people, but my weight was down to 125 at one point). Me ex did not work and so all the financial burden was on me. During one 3 month period a Judge ordered me to pay all of my take-home pay to my ex. I literally had to beg for money from my relatives in order to eat.

Legal fees were atrocious. I paid over $20K to my lawyers (I fired the first one after he failed to get me weekend visits with my kids) and after the divorce was finished the Judge came back and ordered me to pay nearly $10 to my ex's attorney. I had to assume responsibility for all of our mutual non-secured debts and at one point had over $70K in unsecured debt. On the plus side, my attorney negotiated a good financial settlement. I got the tax exemptions for the 3 kids, most of my 401k and a 85% of payments to my ex are counted as alimony rather than child support (good for tax deductions). I still own half of our house which will be sold when my youngest graduates from high school.

You may feel I screwed my ex, but she is not suffering either. She does have to work now and is quite capable (she has a BS in Engineering but doesn't use it). She also receives about $35K a year from me and still lives in a 3100 sq ft home and drives the newer car.

Now many people going through divorce take years to recover. I first participated in, than latter led a DivorceCare group at my church for a couple of years. It was an eye-opening experience. It certainly helped me get through the divorce emotionally and spiritually much faster than most people might. However, I did see many people struggling financially for many years after their divorce.

My assessment of their financial situation was that it was largely self-imposed despite their constant complaints about the lack of support from their ex's. Most lived in homes or apartments that they could not afford or would go out and buy new cars or new clothing. They had no plan on how to recover financially or improve their lives - just anger at their situation or depression. They did little or nothing to change their financial situation, beyond trying to work more hours at a low paying job.

Now, I wouldn't be honest if I didn't say that there were times I felt overwhelmed financially, but I never felt hopeless. Instead I developed a plan that has propelled me back to a better financial situation then I was in before. Here's what I did:

  1. I moved to the cheapest apartment I could find and scavenged furniture.
  2. I liquidated every penny I could and put all my energy into paying off unsecured debt
  3. I tried to move as much of my debt to zero or low interest rate loans
  4. I drove an old car
  5. I never ate out - I cooked everything myself from scratch whether alone or when my 3 kids visited
  6. Once my debt was down to manageable levels, I bought a real estate course and started searching for a distressed seller
  7. I used a loan from my 401k to buy a house that I found at $33K less than market value - so "nothing down". The payments were slightly higher than my rent but offset by the interest and property tax deductions on my income tax turned this into a wash
  8. I used the "instant equity" I had created from my house purchase to get a HELOC loan and found a second house at far below market value from another distressed seller. We spent $16K fixing it up in our spare time and created more net worth
  9. This year we are focused in expanding our real estate investments and expect to create another $50-$80K in net worth.
Has it been hard? yes! Has it been a lot of work? yes! Did I have time? No! I'm now married with 4 teenagers. I still attend almost all of their after school sports meets and other school activities. I spend time with them helping with homework. But I don't watch TV or waste time on non-essential activity. I still don't spend money on non-essentials (my only purchase has been a new bed when I re-married). Now I have to give credit to my new wife as well. She has supported every decision and worked along side me while we rehabbed our rental property. Her love and support have been essential to my financial recovery.

Can you do what I did? Sure. Will most people? No. I learned while in Amway that most people would rather complain then act. God created an abundant Universe and I believe we have the right and maybe even obligation to take advantage of that.

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