What is the life event that is the most likely to leave you broke or at least cause serious damage to your financial security? You might think it would be a business failure, a job loss, or a lawsuit. Nope. It’s a divorce.
There’s a good reason all those multi-married celebrity multi-millionaires protect their fortunes by having prospective spouses sign prenuptial agreements. For ordinary people with ordinary incomes, a divorce is even more likely to be a financial as well as an emotional disaster. Dividing assets, paying attorney’s fees, paying child support, and providing for separate households can move a family from “upper middle class” status to “struggling to pay the bills” faster than almost any other cause.
Another leading cause of financial devastation is a serious health problem. Even if a major illness or serious injury is covered by health insurance—not necessarily a given in today’s world—its financial impact can be severe. A serious illness in the family, whether it affects a parent or a child, often results in one of the family breadwinners having to quit a job. Add in all the illness-related expenses that insurance doesn’t cover, and a family can go through all its savings and other assets in a very short time.
As my clients and regular readers of this column know, I’m a great fan of asset protection. My role as a financial planner is not just to help clients build their assets, but to help them preserve what they have. Over the years I’ve learned that asset protection means committing resources to take care of intangible as well as financial assets.
For example, I now ask clients to take two health evaluations as a routine part of our financial planning process. These give me estimated longevity estimates that are helpful in my retirement cash flow projections. Even more important, they can spark conversations with clients about what they can do to maintain and improve their health. Because poor health can be a major destroyer of a retiree’s nest egg, staying healthy is an investment in one’s financial as well as physical and emotional well-being. For the same reason, it’s important to consider disability insurance as well as health and life insurance.
It makes sense to apply the same perspective to relationships. A regular date night with your spouse, a couple’s workshop, or a series of sessions with a counselor to help resolve a long-standing conflict might seem to be something you can’t afford. Even those of us committed to personal growth probably would hesitate to describe couple’s counseling or individual therapy as investments that might have a tangible financial return.
Yet many of us regularly spend significant amounts of money and time to attend college or seminars to build and maintain our professional skills. We recognize these costs as worthwhile investments to keep our careers and businesses profitable as well as fulfilling. The same thinking makes sense when applied to a marriage.
For an eye-opening exercise, try writing down the costs over perhaps six months or a year of couple’s counseling, dates, and other expenses related to maintaining a strong marriage. Then compare those numbers to the anticipated cost of a divorce—the long-term costs, not just the immediate expenses such as attorney’s fees. Seeing the comparison in harsh financial terms is a persuasive argument for relationship-building expenses as investments you can’t afford not to make.
Most of us think of good health and strong family relationships as valuable intangible assets. Indeed they are, but they have measurable financial value as well. The quality of those intangible assets has a direct impact on your pocketbook and your net worth.