Getting a Good Deal on a Divorce

For the financial planner, the Serenity Prayer should say:

God grant me the serenity to accept the risks I can't manage, the know-how to manage the risks I can, and the wisdom to know the difference. 

Some risks are just really hard to manage.  Like marriage.  Well actually, not marriage, but divorce.  Technically, I think marriage qualifies as a "peril" (in insurance terms), with the "risk" being that of it possibly resulting in divorce.

We know the statistics: roughly half of all marriages don't last (actually, 41% of first marriages, 60% of second marriages and 73% of third marriages. see a pattern?).  Not the best odds.  And for the ones who don't stay together, divorce is often devastating financially.  Two households, spousal support, child support, lots of lawyers, (many of whom apparently now charge $700-800 an hour). 

So what's the best way to manage the financial risk of getting divorced?  Don't get married, of course!  I mean why assume that kind of liability?  Is the marital tax benefit really that significant when compared to the possible costs of a divorce? How bad is your need to get on your boyfriend/girlfriend's employee sponsored health insurance plan?  Yes, I know,  there are also estate planning, Social Security and insurance benefits to marriage, but is that really why people get married? No.  Most people get married because they're young and in love, of course. (I'll just hold any cynical comments and leave it at that.)

The McCourts, by the way, are reported to have just spent 19 million on their divorce.   

So let's say you're an incurable romantic or you want your children to have what you never did, and you just gotta throw a really big expensive party where you publicly declare your undying love and commitment to your soul-mate.  Fine.  Sadly, a few short years later, when you're sitting across the table from each other in mediation, you will take full advantage of the opportunity to really stick it to your former love, dredging up every last drop of resentment in an attempt to financially leverage your pain.  That, of course, is the biggest reason why divorce is so expensive.  Bickering takes up a lot of time, and so does going to court over and over again, and your lawyer is going to charge you for that time.  You are paying  $800 an hour to have a lawyer sit there and listen to you and your ex act like children, and before you know it, your retirement money, college savings and everything else has evaporated.

Since it seems like a lot of people around me are getting divorced, I thought I would write a column about the price of a divorce, and maybe uncover some way you can get a great deal on one (maybe a Groupon?).  

Nope, no deals.  And if you buy a $50 divorce kit you may seriously live to regret it. 

So what CAN you do to manage the divorce risk?

Let's review:

• Top cause of marriage? Naivete (love). 
• Top cause of divorce?  Marriage.
• Second place? Money.
• What to do? While you're still in love, hire a financial planner to help you deal with your financial differences before they lead to divorce.
• What else? Go to a therapist to deal with your issues. You can get a really good therapist for less than $200 an hour, and that means you can argue for about 4 times as many hours in front of your therapist as you can in front of your lawyer for the same price.  It's like a 75% off deal! 

Maybe you can't help falling in love and getting married, and maybe you can't always help it if your marriage isn't quite as perfect as you had mistakenly believed it would be, but maybe a good financial planner and therapist can help you work things out, and I say it's a great investment if the return is a lowered risk of divorce.  If love or the kids don't provide a strong enough motivation, just think about how much money you'll save by not getting divorced!  And if your marriage has already fallen apart, you should definitely hire a financial planner and a therapist because you've got a whole list of new issues to figure out, and even if you paid him $1,000 an hour, your lawyer won't help you heal emotionally or learn what you need to be doing with your money.  And if you save enough money, maybe you can use it to go to law school before you get married again...

Greece, how can you do this to us?

Several people I know seemed to have been vacationing in Greece recently, and they were posting lots of beautiful pictures.  And as I looked through those beautiful pictures of them posing on sandy beaches, eating grape leaves in romantic cafes and posing in front of the Parthenon, I was struck by the complete contrast between those images and the ones I was seeing on the news, of rioting in the streets of Greece against the new austerity measures.  The Greek people are kind of pissed off right now, and the world is a little pissed off at Greece right now.  Especially the Germans and the French, who aren't too happy with having to mop up the Greek mess after their drunken spending spree has resulted in massive debt, threatening the very existence of the Euro, and leaving the more disciplined European nations with the choice of either bailing Greece out, or risking massive economic collapse.  

So why should YOU care?  Because you probably own stocks or funds in your 401k of companies that either have operations in Greece, do business with Greece, own European debt which is dependent on Greece, etc.  One planet, one people, one mess.

And then I was thinking about Greece, the birthplace of philosophy and logic, and I thought Greece, how can you be so unreasonable?  What would Socrates say?  I mean, this is kind of embarrassing.  

Remembering the basics of the Socratic method from college, I was thinking that Socrates might have a few questions.  Like:

Is It reasonable to continue spending sums of money that are disproportionately large relative to the sums you bring in?

How exactly can Greece sustain debt that is hovering around 162% of its GDP, while continuing to employ a really large workforce, providing a really cushy social safety net,  and not being really good at collecting taxes?

Well, one of their answers is to grow tourism some more.  Tourism already accounts for about 15% of the Greek economy, but surely there are some more people who can be enticed to come frolic on those sandy beaches, eat Greek salads and polish off some Ouzo.

Another solution the Greek propose is to sell off some assets.  

But if I were Socrates, I might wonder how, if they sell off the Parthenon, will they be able to use it to make more money off the tourists?  Hey, maybe I should start a hedge fund that buys distressed Greek monuments…

Oh, and generally speaking, I don't think it's a great idea for anyone to spend 162% of what they earn.

Really, Mr. Greenberg??

I recently read a column by Jeremy Greenberg on MSN.com's "the family room" section, called "When Kids have Home Envy".  Admitting some insecurities and hinting at a certain sense of apology, he was asking readers what would be the best way to explain to his child why they live in a house that's not as big as those of some other people.

Well, let's see…. I can come up with a few answers to that one. 

How about:

1) Large homes require far more cleaning, and unless you like scrubbing lots of toilets, we're staying here.

2) Large homes require a lot more power to heat, cool, and light.  This energy is created by electricity, which is largely produced by burning coal, which despite all claims to the contrary, is a huge environmental pollutant.

3) Electricity is very expensive.  Do we want to spend all our money on heating and cooling rooms no one ever uses anyway, or do we want to go to Disneyland sometimes?

4) In large homes, it's easy to lose things.  Keys, sunglasses, special toys, your homework, your children.

5) When you wake up in the middle of the night and you're scared, it's no fun to have to wander large halls and staircases to find your parents.

6) In a large house your mom can't hear when your brother is torturing you.

7) If we got a large house we'd be having to work crazy hours to pay for it and we'd never see you, and that's not a trade-off we want to make.

8) We think it's important for you to learn to think of how much you actually need rather than how much you can possibly get.

9) We'd like to teach you to tread softly upon the earth and leave a small footprint.

10) We think that having an excessively large house, teaches you to focus on material excess, which will ultimately lead you to a life of emptiness and constant longing.

11) We'd rather not spend our lives walking past huge, empty rooms with cathedral ceilings, that we just don't have the heart or energy to furnish because they won't be used in any case, so why bother.

12) We could have moved into a bigger house, but we chose not to.  

13) We don't like big houses.  We think they're cold and lonely.

14) Bigger doesn't always mean better.

15) We like our house just the way it is, because we all have enough space for our selves, our stuff (more of less) and it is a warm and intimate place into which we invite our friends and family because we want to be near them.  Our house embodies so many of the values we want to teach you, as you grow up and make more of your own choices about how you want to live in this world.  

16) We love you and we want to be close to you.

How's that for a start?

On Morality and Shoes

Every now than and then a person needs a little lift ---- the kind that can really only come from buying a new pair of shoes (I'm speaking for all of us, right?).  So I'd been feeling the shoe urge building in me over the last few weeks, and finally, last week, I found a little window to quench it.   I didn't want to totally splurge, so I figured I'd go into DSW and see if I could find a great deal on something nice.  Walking up and down the isles, I found lots of cheap shoes --- I mean, not just inexpensive, but also cheaply made, with cheap materials, not really interesting or comfortable.  And yeah, they were inexpensive, but most of these shoes weren't that expensive even before they were discounted.   

Deep thought #1:  It's far more satisfying to find a cheap expensive pair of shoes than to find a cheap cheap pair of shoes.

Then I tried on some higher quality brands, and boy, did they feel great.  What a difference!   But the ones that ended up at the discounter  were in some pretty hideous colors and styles.  I have no questions about why those shoes ended up so deeply discounted, and I tried to talk myself into some super comfortable Cole Haan yellowish snakeskin moccasins with……oh, never mind, they were so ugly!  

It's clear that some products are really better and deserve to be priced higher, but since I really didn't need new shoes, I started thinking about what my budget should be for this admittedly frivolous purchase.   Would a cute cheap pair of shoes scratch the itch, or did it have to be something really great that cost more?  

The first question is, "why do I want shoes?"  To that, I have no answer.  It just is.  It's like when, at the age of three, one of my kids asked, "mommy, why is blue?"  Some people eat, some people drink, some people like shoes.  

As I mentioned in a previous column (Your Budget is Failing Because of Glenn Close), you need to allow yourself the occasional indulgence, but how do you determine the appropriate budget for that splurge?  Clearly a person with limited means and meaningful debt should probably just indulge in some new lipstick, but what If you're a fairly wealthy person with a nice income, and you won't be damaging your financial position by walking into Prada and buying a $1,500 pair of boots?  Should you?  Or would that just be wrong?  Would it bring you pleasure or guilt?  Should you just buy yourself something modest and give the rest to charity, for example?  

It is at this point that you must "take a dive into Lake You", as my husband would say.  You must think through your feelings before, during and after a purchase, and you must find where exactly the thrill resides.  Is it all about the hunt (or bargain hunt), and after you bought the thing you're not that interested in it anymore?  Is it about the feeling of power and control when you confidently swipe your credit card and are able to buy yourself something nice?  Is it about rewarding yourself for an accomplishment (like having just paid off your credit card)?  Or is it really about the pleasure you will get from the use of the purchase?  It's important to be able to answer these questions, because it reveals something about your basic values.  Misunderstanding your shopping values, and the source of your shopping pleasure can lead to a misalignment of your values and your spending,  and that inevitably leads to all kinds of unhappiness and guilt.  When I plan to go shoe shopping, I am just full of excitement and optimism, and I'd hate to have the experience ruined by feelings of regret and self loathing.  And Who knows ---- you might discover you love to try on lots of shoes and not even buy anything.  Try it sometime, I have.  It'll save you a ton of money!

So I was exploring my feelings about shopping and shoes while browsing countless pairs of boots and wedges and those horrible strappy, Roman warrior looking sandals from last year (I tried, but they never grew on me).  Since I was finding nothing that really excited me, I was starting to think I should just forget the whole expedition and go home, but going shoe shopping and not finding anything is really depressing (oh, don't judge me!).   And then I found them.  A totally cute pair of Kenneth Cole flats marked down to $30!  I realized that on this day, at least, I was a thrill-of-the-hunt kind of gal, and I had totally found satisfaction.

I walked out of the store with a feeling I soon identified as RELIEF.  Weird, huh?  But that's definitely what it was.  But why relief? Well, I felt relieved that (a) I didn't have to go home empty-handed, (b) I didn't buy something ugly just because I really wanted to buy something, and (c) I didn't spend a lot of money, which would have made me feel guilty.  

Deep thought #2:  If you insist on turning it into a deep, emotional exploration, buying shoes can be a really draining experience.

The 89% Solution

I love HGTV. Who can resist watching shows where shiny, optimistic, young couples live the American Dream of starting out their life together by buying a house?  Which one will they choose?  So exciting. There are shows with ideas for redoing your kitchen, shows about choosing colors, shows about solving common decorating problems people have.  It's all very comforting.  Then there are the shows I love to hate.  They have a show called "Bang for you Buck", for example, that tells us what percent return we can expect on our remodeling costs.  The episode I watched today showed 3 houses where the homeowners each spent $50K remodeling their back yards, adding pergola's and fire pits and outdoor kitchens, and the experts decided what percent return they would each get.  I always have a lot of questions about this part.  How do they know? I mean, knowing what percent return you'll get on the 50k you just spent on your yard means (a) You know exactly how much your house will sell for, and (b) You know exactly how many of those dollars are coming from that $50k backyard.  How are either of those things knowable?  

Did I mention this episode was filmed in Phoenix?  Phoenix, where home prices are in the toilet.  In some neighborhoods you can now get a house for $30,000.  But who could argue with putting a $50k backyard onto a $30k house?  You could get an 89% return on your investment!  That's what the winner was told he'd get.  An 89% return.  That's exactly $44,500.  Boy, was he happy!

I still don't know how they do it.  How can they know, "you will get a 39% return"?  I mean, why not a 42% return?   And they don't say, "you will get a 39% return on the money you spent when you resell your house", they say "you will get a 39% return on your investment"!   Does that mean you would get the $50k back plus another 39% ($19,500) on top of it? Do they mean you will recoup 89% of the $50k expense at sale?  Not clear.  And could you somehow get that money without selling the house?   It's pretty hard to sell a house in Phoenix right now. In some parts of Phoenix home prices are down as much as 81%, because there just aren't any buyers. The median home price in Phoenix is now down to roughly $124k.  But with an 89% return on his $50k investment, the winner will be able to sell his house for what? $168,500, which is {(124k+ .89(50k)}?  or $218,500 which is {124k+50k +.89(50k)?  I'm not totally sure.  And the couple who lost? They will apparently only get a 39% return because they didn't put in enough grass.  Grass.  In Phoenix! 

This is one of those ridiculous shows that makes me scream at my television. 

Maybe this was an episode filmed a few years ago, before things got ugly.  Before people got stuck in those Phoenix houses because they couldn't sell them, and they couldn't refinance their loans because they were so far underwater.  But should they really still be showing those episodes now??  I mean isn't that a little insensitive?  I'll bet those people aren't thinking damn, I wish I'd spent $50k on my backyard, they're thinking Damn, I wish I HAD $50k!  Or maybe Damn, I wish my house was worth $50K!  I'll bet they're thinking that renting wasn't such a bad thing after all, and that all those episodes of House Hunters may have given them the wrong idea.   But all those episodes made home ownership look so great!  And anyone with a pulse could get a loan, even if they could only qualify for the teaser rate on an option ARM.  And surely home prices would continue to appreciate at 20% a year, and unicorns would prance, smiling, through your $50k back yard.

Despite what everyone always says, a home is not such a great investment.  I mean by the time you factor in the financing costs, insurance, property taxes, repairs and all the other unexpected joys of home ownership, even in a normal market, home prices historically appreciate at a whopping rate of 5% annually. You're lucky if you break even.  Don't confuse a home with an investment.  Buying a house just means you have a place to live, where you can paint the walls whatever color you like, but no one will come fix your plumbing problem for you in the middle of the night for free. 

So if the 50 thousand dollar backyard isn't a great investment, what should you do with that money?  Two words:  Data Centers.  Big buildings that house computer servers through which all our cyber stuff is shuttled and parked.  They're in huge demand.  All those little packets of data, including this blog, need a home.  Data Center are full of tenants before they're even built.  According to the LA Times article I just read, the tenants for a new data center they're currently building in Redondo Beach just signed a lease for $12 million.  Nice, huh?  I wonder what percent return the owner of THAT building is going to get.  And you know who some of their biggest tenants are? Media companies.  Like maybe… HGTV?   I wonder if these data centers store hundreds of episodes of Bang for your Buck…

Until now, these data centers were just chilly, dark bunkers, with massive security (entry granted by retinal scanners),  but now they want to make them more pleasant and homey for the customers and the employees.  This new one they're building offers Starbucks coffee, video games and big screen TV's in its lounge.  Hey, here's an idea:  A new show on HGTV where 3 data center developers each spend $50k to remodel their lounges and then the expert tells them what percent return they'd get on that investment.  89%? 39%?  Whatever, we can just make up numbers. They could call it "Divine Data Centers".  Can't you just see Vern and Genevieve and Candace all discussing their feelings about the furniture placement and color choice?  And the episodes would be filmed, and then stored in the data center, until such time as they became economically offensive.

See? That would be an investment.  But you probably wouldn't want to live there.    Although, maybe with the right staging….

Really, I think it's only a matter of time before we start seeing shows on HGTV like "Curb Appeal Your Data Center", or "Extreme Makeover; Data Center Edition".

And I want credit.