FIRE Divorce: Keeping Early Retirement Plans on Track
Are you concerned about getting divorced because you and your spouse are staunch FIRE proponents? Divorce can indeed be more complicated for FIRE couples, but with enough planning, you can come through it with your financial independence and stability intact.
For the uninitiated, FIRE is an acronym for Financial Independence, Retire Early. Subscribers to the FIRE way of life aim to save as much income as possible at an early age and then retire. Most live well below their means while building investments and focusing on financial independence. Not all FIRE advocates are willing to survive on a starvation budget though. Some put more effort into building passive sources of income. Others plan to turn a “side hustle” into their main occupation as soon as they can afford to leave their nine-to-five jobs.
Whatever your particular focus has been, divorce has the potential to throw all your carefully laid plans into chaos. But it doesn’t have to be that way if you plan ahead.
Bari Weinberger recently wrote about FIRE divorce in a her new article for the New Jersey Law Journal: Divorce on Fire: When Splitting Up Threatens Early Retirement. Here are some of her key takeaways.
Do Not Let High Conflict In Divorce Burn Up Your FIRE Plans
If there is one thing to keep foremost in your mind when it comes to FIRE and divorce, it is that high conflict burns up time and money. Court battles are expensive. The FIRE lifestyle is also out of the mainstream, and judges may not have the time or patience to properly assess your plans. In most cases, a better route will be divorce mediation and a negotiated marital settlement agreement (MSA).
Divorce mediation can succeed even with complex financial scenarios, but you will each need a separate consulting attorney. Your attorneys can help you assess the need for experts, which might include financial planners, appraisers, or business evaluators. If you have a pension or a life insurance policy, you might need an actuary. If one of you wants to retire soon and the other disagrees with this plan, you might need an employability expert. You can consult with experts before and/or during the mediation process, either jointly or separately.
FIRE and Dividing Your Property in Divorce
Asset division is often the most complicated part of a FIRE divorce. You may well have multiple streams of income, which can be difficult to evaluate. If you are like many FIRE couples, you also have unusual assets, such as numerous rental properties, massive amounts of cryptocurrency, frequent flyer miles, reward points, or unconventional business ventures. Fire couples tend to have less debt than many couples heading into divorce, but you will need to assign any debt you do have to one spouse or the other.
Your first step will be to determine whether each asset and each liability is marital or separate property. Then you will assign a monetary value to each asset, as well as to the income stream each asset generates. Your financial experts and your attorneys will help you do this. If you choose mediation, your mediator can help you work out thorny issues, such as who should get to keep a joint website or a rental property.
Is Either Spouse Entitled to Spousal Support?
If you are the lower-earning spouse in a FIRE couple, you may be worried about your post-divorce expenses. Even if you stick to a shoestring budget, it could be impossible to maintain your previous level of savings on your income alone. If, however, you and your spouse agreed to plan for early retirement, you can argue that a high level of savings has been as much a part of your marital lifestyle as your thrifty spending habits. Your attorney can help you build an argument for spousal support using the Family Law Case Information Statement.
The marital standard of living is one of a long list of factors New Jersey courts consider when deciding whether or not to award spousal support (NJSA §2A:34-23). While you cannot necessarily expect to continue exactly the same lifestyle once your combined income is supporting two households instead of one, the lower earning spouse may be entitled to some level of support to alleviate a disproportionate burden. Depending on the circumstances, support could continue for up to the length of the marriage. If you were married for at least 20 years, or if exceptional circumstances exist, it could continue for even longer. If you are the higher earning partner, your attorney will carefully review all financial information to ensure that you do not end up paying more than a fair amount.
What about FIRE and Child Support?
Child support is based on a formula that includes income and parenting time, so in most cases, it is not negotiable. The Schedule of Child Support Awards, however, only applies to parents with a combined annual income of less than $187,200. Many FIRE couples have a higher joint income than this. Typically, at these higher income levels, a parent receiving support for children will provide the other parent with a request for supplemental expenses.
If you are the parent paying support and your spouse presents you with a schedule for supplemental support showing a need for things like private school tuition, expensive lessons, etc., you do not automatically have to accept this. A parent who has never paid for such items, and who considers paying for them to be contrary to the FIRE philosophy, can argue that they are unnecessary for the child and inconsistent with the parent’s own established lifestyle.
Can You Still Retire Early?
If you are not paying spousal or child support, you can focus right away on getting your FIRE plans back on track. If you are paying support, your attorney can help you reassess. Retirement before age 66 or 67 is generally considered “early” under New Jersey law.
A court assessing early retirement in the context of spousal support will consider whether or not the retirement is reasonable and in good faith (NJSA §2A:34-23c j. (2)). Statutory factors include the age and health of both spouses, your motive for retiring, the usual age of retirement in the applicable line of work, and your spouse’s need versus your ability to continue paying post-retirement. A court will also consider both parties’ reasonable expectations regarding early retirement, both during marriage and at the time of divorce (NJSA §2A:34-23c j. (2)(e)). If you are negotiating am MSA, it will be important to incorporate your understandings regarding early retirement into the agreement.
When it comes to early retirement and child support, your child’s needs will always be the most important factor. The question will be whether the benefits to the voluntarily retiring parent substantially outweigh any disadvantages to the child. In some cases, even if the needs of a supported spouse permit early retirement, the needs of a child will prevent it.
Moving Forward Post-Divorce
One thing you can take heart in as a FIRE couple is that your focus on financial independence gives you a big boost in post-divorce readiness. You are already financially literate and focused on the future. These are the basic tools you will need to craft a new plan and move forward. Divorce might be a setback, but it does not have to be a permanent one.
Learn more about divorce finances by reading our blog: How to Protect Your Finances In Divorce.
Are you going through a FIRE divorce and have questions about your financial future? Our highly skilled attorney are well-versed in the complex asset portfolios FI spouses commonly accumulate. To get answers and a clear strategy for your next steps, please call us today at 888-888-0919 to schedule an initial consultation.
