Even unmarried couples sometimes need prenups. Absent the nuptials, they have a different name: a living-together agreement. Financial advisor Stephanie Stiefel, with Neuberger Berman in New York, frequently recommends these agreements for clients in a postdivorce relationship who have unpleasant memories of fighting over assets.
“You don’t want to have to go through that a second time,” she says.
Stiefel, Barron’s fourth-ranked woman advisor nationwide, has guided dozens of clients through divorce. And while advice on living-together agreements may strike romantic idealists as cynical, she has found that it can be an important part of putting clients on a path toward a secure and happy future.
Breakups “can actually end really well when you have the counsel to make good [financial] decisions,” she says. This may run counter to the doom-and-gloom narrative that often surrounds divorce. But Stiefel reports many happy endings.
A native New Yorker, Stiefel was widowed at age 34 and left to raise a 6-year-old son on her own. Helping people whose lives have turned upside down has become a specialty: A quarter of Stiefel’s clients have either been divorced or widowed. Today, she’s married to a matrimonial lawyer.
Much of Stiefel’s advice might seem counterintuitive, if only because clients in the midst of divorce aren’t thinking long term. Among her top rules: Just as flight attendants tell you to secure your own oxygen mask before your children’s, take care of yourself first.
“Your natural tendency is to make sure the kids are OK,” Stiefel says. That can lead to a mistake, such as keeping the marital home for the kids’ sake when you really can’t afford it. Live within your budget to create financial confidence, she advises. The kids will adjust.
Similarly, divorcing people shouldn’t automatically play it safe when it comes to investing, Stiefel says. There’s a tendency to want to protect the portion of marital assets that you’re left with. But if alimony payments cover your income needs, it may free you to take more risk with long-term savings.
Conversely, if you’ll be paying alimony for a number of years, you may need greater earnings from more aggressive investments to help cover the payments.
One of the first orders of business for newly divorced individuals, says Stiefel, is getting a handle on new living expenses. This means determining both how much money is available to fund your lifestyle, and where you can economize. Stiefel goes through her clients’ expenses with a fine-tooth comb—everything from domestic help to magazine subscriptions to cable and phone plans—to ensure they’re not paying for things they no longer need.
Keep in mind that as couples divide the assets in their 401(k)s, IRAs, or other tax-advantaged accounts, the proceeds will need to go directly into similar accounts. An advisor will help you avoid missteps that could result in a big tax hit and early-withdrawal penalty.
As couples separate their affairs, one party will generally choose to hire a new accountant, trust and estate attorney, or other professionals. Friends and family will offer plenty of referrals, but be aware that their own situations and needs may be completely different from yours. Stiefel suggests seeking personalized recommendations from other trusted professionals with whom you’ve worked—your financial advisor or matrimonial lawyer, for instance.
A dispenser of practical financial advice, Stiefel also offers divorcing clients perspective. For example, a spouse might be demoralized after seeing a hard-won asset base chopped in half. “Time is your friend,” she says. “You’ll have the ability to make it back.”
She reminds clients of divorce’s sometimes-overlooked upsides. Getting to make unilateral decisions about spending is a big one: no more sparring with your spouse about where to go on vacation, or whether enrolling in graduate school is a good idea. The manacles are now gone, Stiefel says. It’s your call.
Love blossoms eternal, and the dating pool beckons to many. But, Stiefel warns well-to-do clients, plenty of people are in it for the money. When you’re ready to dive back in, she says, use a reputable matchmaker to screen for the good guys or gals.
“It seems to have worked for my clients,” she says.