A Spreadsheet Divided Them

For Sonia, it felt like her husband Dave was having a separate relationship, one that didn’t include her.

With whom, you may ask? With their household finance spreadsheet.

She told me “I felt Dave was having an affair with his spreadsheets, like it was something secret that I couldn’t take part in.” She said she wanted to be part of it, but it felt like he wouldn’t ever include her.

Dave, an Electrical Engineer in Space Sciences at a local nonprofit, research and development organization in San Antonio, admits he likes his spreadsheets. But Dave disagrees with Sonia’s description.

As he told me, “The truth is, Sonia helped me build the spreadsheet. I got the budget categories from [well-known finance guru] Dave Ramsey. I forwarded it to her, and she’d tweak it a little bit. I think she would agree she was included. She probably didn’t want to be included. My perspective is: We both came up with the plan. The problem with it was sticking to the plan. Then later she would say, ‘I don’t want to talk about the spreadsheet.’”

spreadsheet_divided_themAnd that description by Dave is quite different from the way Sonia experienced it. “I did have a part in creating the spreadsheet but once it was created, I felt excluded from maintaining it or suggesting changes to it,” she told me.

In my self-appointed role today of pretending to be a financial therapist, these different narratives are troubling.

Now is the time I should mention: Sonia and Dave got divorced. They agreed to speak with me separately about their distinct approaches to shared household finances.

There’s no villain here. Just two good people for whom shared financial responsibility couldn’t reconcile happily. They both agree that irreconcilable approaches to spreadsheeting did not cause the divorce, but they also both describe it as an unresolved tension in their marriage.

Totally irreconcilable approaches to money are extremely common in couples. Google “top reasons for divorce” and money generally makes the top three of any list.

Dave’s engineering mindset couldn’t cope with Sonia’s approach. He said, “I like to keep everything within a few squares. When I was a kid, I was certainly someone who likes to color within the lines. And Sonia was a person who colored outside the lines. I remember clearly coming home and there were a bunch of Target bags, and I’m like: where is this going to fit on the spreadsheet? We’re going over our budget.”

yoga_mindset
Yoga mindset…different from an engineer mindset

Dave described their differences like this: “She came at it from a quality of life approach. But the way I see it, you have $10, you can only spend up to $9.99. That thing over there would make my life enjoyable, but we don’t have the extra money to do it. I’m an engineer, so numbers explain the world. When I talked to her about money, I used to get a blank stare.”

Sonia also remembers being blamed, she felt unfairly, for making Target a favorite, well, target. Sonia, in recalling that same interaction, described it more as a glaring stare, rather than a blank one. “I felt like he overreacted when I’d made purchases that didn’t have a spreadsheet category – we never broke the bank – in fact with our two incomes, we had a promising little nest egg building up,” she said.

Sonia is an executive for a non-profit organization in San Antonio.  She has a professional life beyond yoga, but I first met her when she taught my daughters sun salutations in a local studio. In her office job she works with spreadsheets to track projects. But at home, rather than representing a shared solution, she felt the spreadsheet tended to limit their collaboration. She resented it.

I myself enjoy spreadsheets, but while listening to Dave I could empathize with Sonia’s reaction to his “stay inside the lines” approach. That, in turn, reminded me of reader feedback I received last fall.

Loyal readers of this blog (both of you!) may recall me asking for your help last November  with a project. We know that couples stress about, fight about, and sometimes even break up about money.

engineer_mindTo prevent that, what questions – I queried back in November – should couples ask each other before they get married or commit to a life together?

I figure good communication can’t guarantee a happy financial path but maybe is the first step to solving problems together.

I received some nice responses. Thank you. I also received some responses that made me laugh, ruefully. They frankly made me worry about the relationships of my readers.

Like when the husband responded to my open-ended query by mansplaining to me over email how his spreadsheet was the key to their financial success. Notice “my spreadsheet is a key to our success” is a far cry from the original topic of “what questions should new couples discuss together about their financial life?”

To state the obvious, “here’s the answer” is not the same as “what are the questions?”

Dave, with his engineer mindset, struggled with Sonia’s yoga-teacher mindset. Dave remembers their marriage counselor telling him, “your way is not the right way.  Or the only way.” So even while Sonia probably needed to work harder to fit inside the boxes, Dave probably needed to work harder to let go of his rigid plan. Sonia’s feeling of exclusion was real, even if Dave didn’t see that as a big problem, or the main problem.

The two now face financial challenges that come with divorce.

Sonia and I recently chatted about building her financial plan, now that she’s single and head of her own financial household. We talked about her mortgage, savings, and investments. I asked her if she had any money stranded in retirement plans with previous employers that she should “roll over” into a brokerage account. She looked sheepish.

She said, “I might have some.” Sonia wasn’t being coy. She just didn’t know.

“That’s why Dave loved his spreadsheets more than me. Because the spreadsheets always knew where the money was,” Sonia told me.

On a positive note, we’re coming up with a plan that doesn’t involve a spreadsheet. She gave full custody of that to Dave in the divorce decree.

 

A versions of this post ran in the San Antonio Express News and Houston Chronicle.

 


or as Wu-Tang_Financial would say:

Please see related post:

12 Money Questions To Ask Before You Get Married

 

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Tax Strategies In Divorce

I hope you never need this post.  Divorce hurts, and maybe the last thing we want to do is plan clever financial strategies in the midst of such as emotional situation.

Justin MillerI sat down recently with Justin Miller, “National Wealth Strategist” for BNY Mellon Wealth Management, and what Miller and his team do is help divorcing couples maximize their financial situation, through tax strategies and careful financial planning – specifically tailored for wealthy families.

Why was I meeting with Miller? To answer your question, no, everything is actually great at home. My first wife continues to choose the path of tolerance, despite everything. But thank you for asking. You’ll be the first to know if anything changes.

I met with Miller so that I could bring you some nuggets of financial wisdom in case you or someone you know is headed down the path of divorce.

I first knew Miller was my kind of guy when he referred lovingly to his two children as his darling little “dependency exemptions.”

Two of his big points in particular seem worth noting.

Before getting into specifics, however, Miller urged folks facing divorce to “start early” in financial planning. “This is not something you do after the divorce is finalized,” he cautioned. “This is something to address early in the divorce process.”

The two take-aways from our conversation had to do with retirement account planning and property ownership splits.

Miller began with a big cautionary tale about “beneficiary designations” in “qualified retirement plans.” Just as with everything about talking to specialized tax attorneys like Miller, many words require unpacking. “Beneficiary designation” means “where your money goes if you die.” Qualified retirement plans” means your 401(k) or pension plan. Incidentally IRAs, otherwise similar-ish retirement vehicles, are not regulated under the same employee retirement account rules, so aren’t “qualified” in this same way.

Here’s a big potential problem with qualified plan beneficiary designations: Whenever you opened one of these plans, you took a brief moment to name your beneficiary, which, if you were married or engaged at the time of the account opening, was probably your beloved. After a divorce, however, your beloved may no longer be your top choice, or even your one-hundredth choice, to receive your money. But the weird thing about “qualified” plans is that your money will only go to whoever is your named beneficiary. That beneficiary designation overrides any other will or estate-planning document that exists. Even if you meant your kids, your grandkids, your siblings, or a charity to get your money, and you spelled that out clearly in your will, federal law for qualified plans means the designated beneficiary gets the money. If your ex is on that document, no matter how undeserving, that’s who gets the money.

Unhappy divorcing guy doesn’t understand taxes either

Here’s the bottom line on Miller’s point: In the midst of a divorce, be sure to update the beneficiary of your pension or 401(k) plan. Otherwise that no-good lying stinker of an ex-spouse could get rich off your negligence.

Miller’s second big tax tip regarding your jointly-owned house may require cooperation with your ex. Your cooperation could be worth a lot of money. Hopefully you already know that you can enjoy tax-free capital gains in the value of your house, up to $250 thousand personally, or $500 thousand with your spouse, under certain conditions.

Let’s add an example to talk about real-life numbers to understand the importance of financial planning of your house sale through the divorce. Let’s say you bought a house 30 years ago for just $200,000. Now, however, the property is worth $1 million. If you sell that property, you could be liable for paying capital gains on the $800,000 difference between purchase and sale price.

Now, obviously you should strongly consider qualifying for the $500,000 capital gains tax exclusion by selling the property while you are together, rather than merely settling for the $250,000 capital gains tax exclusion you’ll get by yourself.

In my example, you’d owe $110,000 all by yourself – based on $550,000 in taxable gains and a 20 percent tax rate. Sell together, however, and you’d only owe $60,000 – based on the $300,000 in taxable capital gains at a 20 percent tax rate.

Bottom line: Save $50,000 by working together, however unpleasant that may be.

Miller points out that if you simply can’t sell while still living together, you may have up to three more years to make the sale and enjoy the full $500,000 tax exemption. Because qualifying for the capital gains tax exclusion requires you both to have lived in the house for just two of the five years prior to sale, you might have up to three years to make the sale, even after you both no longer live in the house.

Finally, here’s an important related note about this capital gains tax exclusion. When divvying up the home value between the two of you, take into account the built-in tax liability of the property. Returning to our home ownership example helps here again. Also, side-note: This next point applies to couples whose house has gone up tremendously in value from when they bought it.

Sometimes in a divorce one spouse buys out the other spouse’s home equity, usually the spouse planning to stay in the house.  One dumb way of dividing up our theoretical $1 million house might be that the staying-spouse pays the leaving-spouse $500,000, planning on staying for the next 10 years. While at first blush this appears fair – $500,000 is half the $1 million value – this is dumb because when the staying spouse finally sells, that whole capital gains tax liability comes with the house. Even if the house does not go up in value, 20 percent of the $800,000 gain will be owed in taxes, or in other words $160,000. Even after the $250,000 capital gains exclusion, the staying spouse will owe $110,000. Paying for exactly half the value of the home, with that large liability in the future, makes little sense.

As with any of this, you want to do some careful planning ahead of time to negotiate a fairer split of the house value.

Mostly I hope my first wife continues to look on my faults with indulgence and that you, too, have no need for any of this advice.

 

A version of this post ran in the San Antonio Express News and Houston Chronicle.

 

 

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