We won’t get into the he-said, she-said or point any fingers. This is a personal finance blog first and foremost. The effects of divorce are far-reaching and affect all members of the family, but again, I’m here to show you the numbers.
So let’s talk numbers. Once again, we’ll assume 11 years has passed since our first look at the 4 physicians, and the more frugal Dr. A has already achieved financial independence.
4 Physicians Revisited: Dr. B & the Impact of Divorce
This isn’t going to be as straightforward as some of my previous puppeteering. Dr. B’s budget is going to look different after the divorce. And, with 2 kids and an ex stay-at-home wife, he’ll be making substantial alimony (spousal support) and child support payments. We’ll do our best to make some assumptions that might resemble his new reality. Here’s a hypothetical budget, before and after the divorce. We’re going to assume shared custody, Dr. B keeps the house, and he makes monthly payments of $4,000 each for alimony and child support, for a total monthly outlay of $8,000.
Many of Dr. B’s expenses are going to be about the same. He kept the house so he’s still paying the same for the mortgage, taxes, insurance, and home improvement. Living part of his life alone will save him some money on the food bills. He’s making one fewer car payment and spending less on family vacations. Some of these savings may go out the window if Dr. B starts dating again or gets remarried. But for now, we’ll assume his annual spending drops from $120,000 to $104,000, but the $96,000 in alimony and child support bring the annual budget up to $200,000.
If you want to look for a silver lining, Dr. B’s alimony payments are tax deductible. Note that this will not be the case for divorces finalized in 2019 or later due to the Tax Cuts and Jobs Act.
Compared to our first revisit of Dr. B, where he upped his spending to $200,000, this Dr. B is in a more favorable tax position, despite having become a single filer. Child support payments are after-tax. Sorry, Dr. B, no break there.
The Verdict: Divorce Destroys His Path to FI
Well, this doesn’t look good for Dr. B. Not at all. I disclosed that Dr. B kept the house, but did I tell you that he had to give up two-thirds of his nest egg as a consequence? The divorced Dr. B sees his nest egg shrink from $1.5 million to $0.5 million in the blink of an eye. The support payments bring his savings rate down from over $9000 a month to just $3,000 a month. How does this affect Dr. B’s path to Financial Independence?
Dr. B was on track to afford an early retirement in six to nine years. After the divorce, he’ll have to work 5 times longer to achieve FI if his expenses remain constant throughout the years.
The truth is not that simple, of course. Child support payments won’t go on indefinitely. The alimony payments may very well be finite, too. On the other hand, unless Dr. B chooses to remain single forever, he can expect to see his budget increase somewhat if he remarries, and even more so if he starts a family with his 2nd (or 3rd… or 4th) wife.
One thing I do know is that divorce can be an extraordinarily expensive endeavor. The cost in terms of money and years are just part of the story; the toll on the psyche, the children, and extended family are beyond the scope of this blog but are perhaps more substantial than the days and dollars lost.
The good news is, despite the perception that doctors are more likely to be divorced (at least that was my perception), the opposite is true. According to a study of American professionals published in the British Medical Journal, physicians were the least likely to be divorced, at just under 25%.
Two simple keys to success often cited are “one house, one spouse“. I have broken the first rule, which may have added a year or two to my career, but have no intention of ever breaking the second. That would be devastating in so many ways beyond the obvious financial implications.
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Does this exercise hit home for you or someone you know well? Or are you thinking, “Thank you, Dr. Obvious, for telling me that divorce sucks.”? I knew it was bad before running the numbers, but I would not have guessed it could quintuple your time to FI. I encourage you to share your thoughts below.
19 thoughts on “4 Physicians Revisited: Dr. B & the Impact of Divorce”
I do have a question if someone is still lingering around: How come physicians don’t just sell the house and buy a cheaper car after a divorce? That’d surely save a ton of money and puts the physician back to living like a resident, which isn’t shameful if I do say so myself… Thanks
I imagine some do. Thankfully, it’s not something I’ve been through myself, so I can’t speak from experience.
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Many of the individuals who are facing a retirement crisis (see excellent WSJ article series “Unprepared”) are divorced. Reading between the lines (the articles do not address specifically) , one can see how this has tragically impacted many people’s finances, particularly when children are involved. Thank you for addressing.
You bet. MMM just shared some details on divorce and finances, too. I was saddened to learn he knows firsthand.
A good rule of thumb for alimony is to expect to pay around 25% of your gross for 50% of the duration of the marriage. Child support varies significantly by state. An emergency physician in Oregon earning $290,000, and divorcing after 10 years, can expect to pay about $72,000 annually in alimony for 5 years, plus about $6,000 per child until each is 18. So, a 2 or 3 kid family would fit your numbers pretty closely. But the biggest chunk is the alimony, and that’s not forever.
As high as this amount seems, my ex spent at least this much annually when we were married, so I barely notice. The loss of half the retirement balance was painful, but 4 years later I’m back to where I was, and now with more control over the finances for the rest of my life. Next year, I intend to continue paying “alimony” to my taxable account, and will probably be able to retire the same year I had planned. I’ll have a little less than I hoped ($2.5M instead of $3.5M), but my expenses will be a lot lower than they would have been with the ex.
Anyway, divorce is a major blow, but I think it’s maybe not the financial catastrophe some fear. You have to take into account the enhanced freedom to save as you see fit, plus the significantly reduced expenses in retirement. (Assuming one never marries again, which is I guess another topic; for my part, I see no advantage to involving the government in my relationships.)
So for those out there who are not married yet, what financial vehicles exist that can protect your assets in case of a divorce? Prenups are rarely completed and sometimes don’t hold up if can prove it was done under duress.
Any divorce experts out there? I heard about hybrid DAPTs. Anybody know a good lawyer to set that up?
Thanks for the question, Darsh. I have no knowledge in this arena (DAPT is dual anti-platelet therapy in my world), so I took your question to a larger forum. You’ve got a few good responses already, with more to come I’m sure.
Thanks for the post on WCI. I have read many articles on that site about investing. Reading through the replies, I will have to see if there is an experienced asset attorney within Illinois. DAPT means domestic asset protection trust FYI.
As an aside, it’s kind of sad that I need to actually look into protecting myself from a future spouse being a creditor and not just thirsty med mal lawyers. I don’t want to end up like Dr. B since the odds are not rare these days. I can always hope that I will have a loyal and economically sound spouse, but a backup plan is always important.
Indeed, I hear you. With questions like yours, it’s always a good idea to crowdsource. There are plenty of like minds over @ the WCI forum. Glad you got some answers.
I definitely sympathize with Dr. B. Divorce is not fun for any of the parties. I am a little surprised he kept the big house as usually it either goes to the wife/kids or for sale. If he had ditched it and bought a condo/smaller home his expenses would decrease. Also his grocery bill will drop more though perhaps restaurant/takeout would offset that. Otherwise probable pretty close but agree he needs to reduce his expenses.
Having recently gone through my own divorce (2 physician family) I found finances actually improved for a few reasons. I was the more frugal in the family, he kept the big house (on the market but all proceeds are his); I purchased a smaller one and CS. Thankfully I am more on track for ER as he didn’t buy into the concept.
Thanks for chiming in and sharing your story. It sounds like you are doing alright on the financial side, which is good to hear. That’s usually not the case in divorce.
I can’t sympathize with Dr. B because we don’t know what led to his divorce, and also he is imaginary. But you are not imaginary, so we can sympathize with you, and I do! Money issues can be a huge source of discontent among couples who don’t see eye to eye. Living relatively frugal with an eye on FI, you are on a good path. Best of luck going forward – PoF
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Been there, done that, got the t-shirt. Seriously though, you are correct. Divorce sucks. In hindsight I would have done a pre-nup. Fortunately, I’ve regrouped and am now financially independent 4 years later. My house in So. Cal will be paid off for in a couple of years and life is good.
Divorce forced me to look hard at expenses. I think Dr. B needs to do so also. I see a lot of potential to cut that budget. How does one spend $16,000 for utilities? Is he running a pot farm? Ditch the gym membership. Get a bike, run, a set of weights. $1,500 extra there.
Slash the home improvement budget in half (at least). There seems to be a lot of over spending in this budget.
Divorce is hard but life gets better…good luck
Glad to hear you’ve been able to regroup and get your financial house in order. I agree that there is a lot of fat to trim in the budget. When I created the 4 physicians, I had a hard time figuring out how to spend so much money for Dr’s B, C, and D. In real life, many of the doctors I know have no trouble at all.
The utilities budget is $6500, not $16,000, so some thermostat adjustments may be in order, but there’s no hydroponic farm in the basement. The gym, the expensive car, the oversized house… all areas that could be targeted to reduce Dr. B’s budget and get him back on the road to FI. Dr. D was able to cut expenses in this post and improve his sitation immensely.
And hopefully just the thought of the destruction that would follow will allow both spouses to keep their eyes on the target (each other) and work as hard at keeping their marriage on track as they did to become a Dr. cd :O)
Divorce is a financial weapon of mass destruction. Choose a spouse wisely.