WCI #210: How to Survive and Thrive as a Divorced Doctor

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here is your host, Dr. Jim Dahli. This is White Coat Investor podcast number 210, how to survive and thrive as a divorced doctor. If you are finding our podcasts informative and helpful, check out our website. Since 2011, we've been working hard to provide valuable personal finance and investing information. Through thousands of blog posts written by an array of authors, you can find information on how to manage your student loans, fix and avoid common financial mistakes, understand your retirement accounts, optimize your investments, find professional help at a fair price, get started investing in real estate and so much more, all at no cost to you. You can find out more about the courses we offer, the conferences we put on, the newsletters we provide the and interact with other WCI readers through our online forum. Head on over to whitecoatinvestor.com to start learning today. You can do this and White Coat Investor can help. All right, let's do our quote of the day today. This one comes from Will Rogers said, when you find yourself in a deep hole, stop digging. I think he's talking to residents who are trying to borrow more money while they're living in residency on the average American household income. Thanks. For those of you out there who are working hard in the trenches of medicine, it's not an easy job. It involves long hours, crazy hours, crazy people, and dealing with the ill and injured. Sometimes it can be a difficult thing to do. So if you're a high income earner and you're listening to this podcast, chances are you have a hard job. You know, it might be that you're a doc, it might be that you are an apc, it might be that you are an attorney or a business owner. But chances are you're not just punching a clock. This is a part of you and you're working hard at it. And you spent years learning your craft. So if no one's told you, thank you today. Let me be the first. We got something cool that's come out this week. You may have noticed it on the blog. We got a store. That's right, a White Coat Investor store or a shop. You can find that@shop.whitecoatinvestor.com all kinds of cool stuff there that you will love. T shirts, books, Yeti mugs, water bottles, beanies, journals, pins. We'll put all kinds of new special deals up there from time to time as we come up with new stuff, we'll put it in there. If there's something you want, see, let us know and we'll see if it works. But for the next two weeks, through May 24, it's 10% off everything in the store. So now's the time. Check it out, see what's there, and get your WCI schwag right now. 10% off everything through the 24th. That's shop.whitecoatinvestor.com all right, we got a special guest on the podcast today. He was actually a speaker at the WCICON 21, the virtual event we had back in March. And so I'm looking forward to getting him on the podcast. All right, our special guest today is anesthesiologist George Wong, who was one of our faculty members at WCICOM21. Welcome to the podcast, George.

Thanks so much for having me. Definitely a pleasure to be on this format. Love doing the conference. Thank you so much for letting me be part of that.

Yeah, it was a great time. It turned out way better than I expected, honestly. It really was an awesome event, smashingly successful, and you were a big part of that. So I appreciate it.

Definitely. Thank you.

Now, I don't want to pigeonhole you into one little niche in the physician, financial, you know, blogosphere, podcastosphere, but you did such a good job on your presentation there. I wanted to bring you onto the podcast and talk about the same subject. Now, your talk was titled how to Survive and Thrive as a Divorced Doctor. And this is something that's relatively new in your life, but something that I get requests for all the time on the podcast, on the blog, and I'm not divorced. I have very little experience with it. You know, obviously I have some friends and family and whatever that are divorced, but no real personal experience with it, which is what people are really looking for when they're, you know, wanting to learn about something. They want not only someone that knows all the ins and outs of it, but they can personalize it a little bit. And so I'm grateful to you for being willing to come on here, talk a little bit about your story, but also get into the nitty gritty details of financial planning and divorce because it can be pretty complex, it turns out.

Yeah, definitely. Yeah. Nobody plans on this to happen. Nobody goes into marriage thinking they're going to get divorced, but it happens. And, you know, it's, you know, back in the day, people used to think physicians were more often getting divorced. And actually what they Found out was that that wasn't necessarily true. And about 25% of docs, 24% of docs are divorced. So a lot less than what people thought. But still pretty significant number even if you look at that. If you look at it on a whole.

Yeah, but it's half the rate of everybody else. It's actually pretty good. And among dual doc couples it's even lower. I think I've seen figures as low as 10 or 12% among dual doc couples. So we got this terrible reputation. Maybe we're not as bad as we think, right?

Yeah, totally. Yeah. And actually better than some of the other fields like lawyers and other high income professionals and yeah, you're right. Dual doc, definitely better.

Yeah. Now if it isn't too raw, can you tell us a little bit about your own marriage and divorce?

Yeah. So I actually come from a two physician marriage. And so you just go through a quick story. We met in undergrad at Georgetown. We did a lot of our pre med classes together. We went to Georgetown, she did Georgetown. So we both went to Georgetown for med school and for residency. I did anesthesia and she did opto for residency. And yeah, we got married right after med school, which is a very typical. There's like a ton of weddings people go to after they, after they graduate from med school. That was us. And so after we graduated from the residency we stayed in D.C. so I stayed at Georgetown and she did private practice for opt though. And that's when we started deciding, started that family. And so we had one child and second child. And that's for me, that's for us. That's when that thing started kind of falling apart. And yeah, I think it was right around the seven year mark when that happened. And so people hear about this seven year itch or whatever it is, but that's for us when things kind of started, whatever cracks were there before kind of amplified and I mean I can go into complete detail about it by the way. Therapy is great, marriage counseling is great, personal therapy is great. And I can go on this whole thing about that, but that's not necessarily what I'm here for. I want to talk about what the circumstances are and how to, how to survive it. But yeah, it's, it's a hard time. It's a very hard time. And you don't plan on it. I never thought I'd be a divorced doc. It's sometimes, you know, I say that out loud. It's certainly really strange. I think I'm the only one in my group there's one other person in my group and it's divorced. But yeah, it's, it's, it's a long process and it's, it goes in waves and phases. There's a roller coaster behind it. But that's are basically my story. I went from, you know, even during the marriage, I was financially, I would say, somewhat literate. I had an idea of what, you know, I've read about the blogs, you know, one house, one spouse, all those things, and I definitely knew the consequences of worse. It was very clear. But, you know, it still happened and I definitely experienced the tough parts of it. And I would say my experience is very middle ground compared to what I've heard from other people, and then somewhat worse than other people. But it was funny, after people started hearing about me being divorced, I started getting phone calls saying, hey, I'm thinking, I'm thinking about getting divorced, but what does that mean? What's going to happen? And, well, I'll tell you my experience and then some people will tell me, oh, I just got divorced. How are you navigating this? What are you doing for child support? What are you doing for paying your alimony? And it was very eye opening just how bad some situations really are. But yeah, it's a subject, as you know, for finance. Just every situation is different. And so I'll try to give the highest yield. Stuff that I think most people can relate to.

Awesome. You know, it's interesting, there's two things docs don't like talking about. They don't like talking about their lawsuits, and they don't like talking about their divorces. You know, we're all type A kind of people and I think it's just hard to talk about those sorts of things. Let's start with a little more about statistics. You know, it's interesting that women who work more have higher divorce rates, but men who work more have lower divorce rates. You have any idea why that statistic is true?

Yeah, you know what? This could be a podcast in and of itself, and I would not be the one to talk about it, but I have an idea of what it might be about. And I think, to answer your question the most directly, I think it's burnout. I think that's the biggest thing. And this is the crazy statistic. So women are half of all the medical school entrants, more or less in the United States, and they're a third of the profession and growing a lot. And despite that, despite they're actually shown to be giving better quality care than male physicians a lot of times. But there's a lot of disparity in the pay gap. So there are a couple things that contribute to burnout. There's the work life balance. They experience work family conflicts to a larger degree than men, I think in part because they take on more of the home and parental duties a lot of times. And there's workplace bias. Another thing that can happen is there's a better chance of being harassed at work. They're less likely to be promoted or move into leadership positions. And then there's that gender pay gap I mentioned. It can be anywhere from 8 to 20%. I've read less than males. And so. And that will translate to tens of thousands of dollars. So when you look at all those things, it's not a good recipe for success in your marital life necessarily. So I think that really contributes to that. The idea of burnout and burnout directly can affect your relationships at home. Just looking at it from afar, obviously not being a woman, that's kind of what I see. And I think that makes sense to why women that especially if they work more, are more likely to be divorced.

Now, most docs who get divorced are going to end up paying just because they typically have a high income. They're typically paying child support and or alimony. Can you talk about some of the ways to plan the timing of a divorce to reduce or increase that, depending on which way it's going to be flowing? And specifically maybe even talking about moving to a state that's known to treat your gender better in a divorce maybe than the one you're in.

It's an interesting question. It's hard to time. First of all, divorce. I will say that every state is different, but I would say if you're going to time it, I guess one strategy you could do a lot of times when they determine child support or alimony, they look at your previous year's income, W2, 1099, whatever it is. And if that is high one year, that will definitely increase your child support and or your alimony. If you were to try to time it, maybe it's one year you want to do part time or cut back on your hours. That, that would certainly be a strategy, but it's a, it's kind of a. I would say all in all though, you can't really time it. Divorce sometimes just happens. But there are cases where you know you're in a marriage and you kind of know things are not going the right direction. And maybe you could do it, but either way you're not going to one party is going to be kind of on the wrong end of the deal. So I would say it's gonna be hard to really time it to your advantage. A lot of other things you can do, you can do a lot of thinking about this one. I think it's kind of hard to really figure that out. Yeah.

Ethical dilemmas abound, obviously, in any sort of planning situation like that, because what you're gaining on one side, somebody else is losing on the other side. And this could just be a race to the bottom. Right. Both of you see this isn't going to a good place and all of a sudden you both just start spending all the assets and you both reduce your income to nothing. And all of a sudden, right, you're both in a financial place. So it's interesting. I also find it fascinating that some states at least have a reputation for being better to women in divorce or being better to men in divorce. I know here in Utah the reputation is that we're much, much better to women here than we are to men in divorce. And I don't know what states are better for men. I have no idea. But have you looked at any statistics like that of which states tend to be friendlier to one gender or the other?

Yeah, I haven't seen. The only thing I've really seen is some states have a shorter time that you can divorce. Meaning, like for example, in Virginia, where I'm from, you need to be separated for a whole year before you can officially get divorced. And so a lot can happen one year, obviously. And so you can kind of start planning some things then, like, we can get into this later, but you start planning how you're going to file for taxes and how you're going to adapt to child support. But it's not official for a one year. But for example, another state, I saw Alaska, you could do it in under 30 days. You can make an official after separation.

There you go. That's my home state, baby.

Oh, is it? Okay, great. Right. Shout out to all the Alaskans out there.

That's right. So, you know, lots of different things affect child support and alimony payments. But I found it interesting from your presentation, you talked about how a high cost of living area can affect them. Can you go into a little bit more detail about that?

Yeah, you know, so child support, alimony, they are very different things, by the way, obviously. And in fact, and the factors that go into it are very different. But I'm telling you, living in a high cost living area is not to Your advantage because a you're for doctor, you're generally going to make, if you're for anesthesia, for example, but I think a lot of other fields too, you make less when you're in a high cost of living area, a big city. So that's gonna, that's, that's one big knock. I mean, yes, it will decrease your total amount proportionally, but ultimately you want to have a high income. That's the most powerful thing is you want to have high earning potential. But yeah, other things too. You know, childcare is more, more expensive in a high cost living area like where I live, it's for a nanny, it's gonna be anywhere from 50 to 60 thousand dollars to pay a nanny. On top of that, if you go to private school, which a lot of people do, and they say go to private school for preschool, which is crazy, right? In preschool that could be 25,000. Right now it's $25,000 per child for preschool. If you want to go private, daycare is not much cheaper. Maybe it can be anywhere from 18 to 20,000. So all those things very expensive compared to a low cost living area. And that's, you know, some of that is calculated into your child support. Child support uses is like a base number. They just assign you based on those factors. But a lot of times nanny's going to be on top of that and private schools will be on top of that. So being a high cost living area definitely can put you behind the eight ball when you're trying to recover or you're trying to try to plan for retirement or being financially independent.

You know, I find it interesting when they calculate that they tend to try to preserve the lifestyle that the spouse or the child had before, which seems crazy to me. Right. Because now you're going from one household to two households. There's no way to preserve that lifestyle. Right. You're lucky. If you're not having your lifestyle.

In.

Your experience, do they ever make an allowance for that or is the assumption that the higher earner is just going to somehow support that lower earner at the same lifestyle?

Yeah, it's very tough. Yeah, that part is tough. And if you're already beyond living like a resident phase where you're just, you bought the quote unquote Dr. House and then quote unquote Dr. Carr. Yeah, it's hard to do that afterwards. And especially for alimony, that's a big one. Where it's. If there's a scenario where the lower income spouse, if they are not working, for example, or if they're low, if they're not making much money, you got to pay the same amount you were before the divorce and money to get at least short term until they get back, get on their feet, meaning get either get a job, either train, retrain for a job, any of those things. So, yeah, the idea of what it was like before is what it should be like after. It's kind of, at least in my experience, has been the standard.

Wow, that's got some pretty serious financial implications on how that higher earner is going to be living afterwards. You just basically lost all those economies of scale you had with two people living together and the family all together, and yet you're still responsible for essentially maintaining that cost in addition to your new living costs. That can be pretty tough. Let's talk a little bit about recovering financially from a divorce. You used in your presentation the phrase live like a resident, which obviously I use all the time to refer to people when they come out of training to keep living like a resident for two to five years afterward. Do you think most divorcees need to go back and live like a resident for another two to five years to make up for this hit?

Hey, you know what, you don't have to. You can go on trips, you can do all that. But if you have an idea to retire at a reasonable age, then yeah, you should live like risen. So, I mean, all joking aside, I firmly believe you do. But also depends on where you are in your career. So, for example, if you're at the end of your career and you've got a big fat retirement account and you're going through a divorce and you don't have a prenup, guess what? Your timeline is now lengthened. Sometimes if you're looking at, even if a big career, if you're looking at 10, 15 years, still financially independent or retiring, you could Prolong that by 20 to 30 years. And that's not insignificant. So I think looking like a resident is definitely a good idea, especially in the acute phase, because you don't know how much lawyer fees are going to be. I mean, that could be astronomical. You don't know how disputed everything's going to be. You don't know how much your child support is going to be if you have children. You don't know how much alimony is going to be if you have alimony, necessarily. So I really do say at least that first year and maybe beyond, just kind of let the dust settle, see where you are, that later after that you can reevaluate where you Are. But yeah, I really do think that.

You have to not the time to take up retail therapy, clearly.

No, and you know what? That's like the same thing with a resident after they graduate. The. They want to delay gratification, right? They want to get all the whatever they want, the house, the car, whatever it is. And same thing as divorce. Sometimes you're like, hey, I'm free. Let me, let me spend on things that I didn't. I wasn't able to spend before all those things. So it's a slippery slope for sure.

You mentioned attorney costs. How much does an attorney cost and what can one do to reduce those costs?

When you're going, I think it's first of all very important to find a good attorney, you know, but that doesn't mean you need to find the best attorney, meaning or most expensive attorney, I should say. A good attorney doesn't have to be astronaut. But I made this mistake when I first got an attorney. I was just, I don't know what it was. I don't know if it's because I was like, you know, I'm gonna get the best attorney. I'm gonna. I looked at it, it was 800, $900 an hour. Obviously that's, I think about it in terms of what I get paid and I'm like, okay, that's a lot more than I get paid. So that actually was not a good experience. They, they were very contentious, litigious. They were like, oh, you know what she's trying to do? She's trying to do this. I'm like, I don't think she's trying to do that. I don't think she's trying to like one up me. I think she's to trying. I think we're like, okay, so I actually dropped her after a month. And she definitely didn't like that. I mean, she was like a very high powered attorney and I think ego was hurt for sure. But I would say the range really can be from 250 on the lower. You know, there's junior attorneys, there are senior attorneys, and there's partners. You can go on that scale of however, what level you want. And if you're from 250 an hour to 800 hour plus, I would say you could definitely get up there. And so all of a sudden down the average, what they say is it's around 19, $20,000. But if it's contested, that will skyrocket even exponentially. 30,000, 100,000 or more. But you really have to think about what your situation is if you're fresh out of residency or if you're fresh med school, it's not going to be that. It's more than likely not very complicated. When you get to the point where you've got multiple properties, you've got your own practice, you've got kids, you've got a lot of things that can muddy up the picture, then the attorney is going to be. I was going to say it's going to be your best friend, but that brings me to my next point. Your attorney isn't your best friend. They charge by the hour, like I said, but not only hour, they actually do it by 15 minute increments. So each time you write a quick email saying, oh, I got a question, guess what, that's 15 minutes. So my pro tip here in divorce talk, you know, as a week goes on, if it's not urgent, just write down an email with multiple questions and they can probably answer that in 15 minutes. But if you're firing off questions here and there, they will. And I experienced this. I don't think it's. I mean, maybe it's unethical, but I think they just charge by the time they actually open and respond. So anyway, that's a quick pro tip, I would say not treat your friend like your lawyer like a friend and save up your questions on a bigger email.

Yeah, it's pretty expensive therapist to Talk to your $900 an hour attorney just for, you know, silly stuff.

It is.

What about other opt options? Mediation, arbitration. You mentioned trying to avoid a contested divorce. What are the ways you can do that and are those options realistic?

Yeah, and I think in many cases they are. And yeah, mediation is a great tool. So basically, mediation is basically, if it's not contentious, you think that there's not a lot to really split up. If you think that you guys can agree, even go through your lawyer to find a mediator and basically it's somebody that can guide you to what the best decision is. They're not going to make the decision for you, but they're a facilitator to figure out what's best. And so I think anyone that's going through divorce should at least consider it. I think you'll probably have an idea if it's definitely not going to go well, in which case your mediation is probably not the right way to go. Like I said, you never know how things are going to end up. So you may start with mediation, then things start getting not good and you may have to just forego that and go straight up with the lawyer. I read a stat there saying that somewhere it works 80% of the time. That's not a side.

80% is pretty good. That's higher than I would have expected.

Yeah, so I mean, and that was on a lawyer's page that I saw that on. So I would think that they would not want to say 80% of the time. But yeah, I have heard of cases of people doing mediation and definitely saves you a lot of time. Less time in the courtroom if it goes that route. So it's not for everybody, though. I think most people will have an idea if mediation is going to work, though.

Can you talk for a minute about what the difference is between marital and non marital assets?

Yeah, absolutely. So any of your assets are considered either non marital or marital. So anything acquired or improved upon during the marriage are marital assets. And then properties that each spouse acquired from a third person or as a gift or inheritance, those are considered non marital, even if acquired during the marriage. The laws will be different from state to state on that too. And so, for example, community property versus non community property states. So just get into that. And I don't have much experience with community property, but I know the kind of the gist of it. So I will say the majority of the states out there are not community property. So really the difference is. So 41 states have this equitable distribution law where marital estate is made up of assets required under each spouse's name. So they're not technically considered community unless on the deed it's written with both names. But in contrast, in the states, Arizona, California, Idaho, Louisiana, Nevada, domestic Texas, Washington and Wisconsin, there are community property law states, meaning a 50, 50 split applies to the couple's entire marital estate. And so if you're the higher earner or if there's a big disparity, you could probably guess that that is not the state that would benefit you in a divorce. I will say that a lot of times, even in the equitable distribution states, a lot of times, if it's somewhat equitable income for both sides, a lot of times 50, 50 is what ends up being the case anyway. They take a variety of factors into account.

Let's talk a little bit about this approach people take. Sometimes when they're really unhappy and they decide, I'm going to take all the assets out of our accounts and put them somewhere else or I'm going to spend all the money. How far do they go back when dividing up assets and debt? What, what are the consequences of doing those things? Moving it to your own Brokerage account or worse, just blowing it all on heliskiing. You know what happens if you do that?

Yeah, there is history, unfortunately, like we said, like I mentioned earlier, there is a, you know, they look back. So they'll look back certainly within a year. It depends on how long you've been married, too. If you've been married for 20 years, I think that's maybe going to be harder to see. But most time, if something like that happens, it's going to be a very big spike in expenditures for that time period for the year or so. So that stuff is considered and it will be equitable in terms of how they distribute. I think every state's going to be different like we mentioned, but I have heard of that too. Luckily did not apply to me, but I can see that happening now.

You say sometimes that assets are divided equitably but not equally. What do you mean by that?

Yeah, so that basically means this is kind of the idea that we're talking about with the community property. So the court will divide property between spouses in a way that's. That they consider fair or equitable. And a lot of times it will be 50, 50. But that's what equal is. Equal is saying no matter what, it's 50, 50, no questions asked. And then the equitable. It's. You're taking into account other things like the financial condition of the earning power of the, of each spouse, what properties are each spouse has or whatever business each one has. A lot of things like that that'll take into account that. So that's more equitable when you consider those things.

Now they say you should never move out of the marital home when you're considering divorce. Can you explain why that is?

Yeah, I came across that when I was, when I was doing the talk and I thought that was a. It was an interesting concept. Yeah. So they say basically if you move, if for somebody after the divorce you decide is to move out, the spouse can file a motion for exclusive possession of the home. And that doesn't necessarily mean that the home is theirs and that they have all the value of it, but it just means that that time period for the divorce proceedings, it's basically, you cannot enter your home. And usually that's obviously it's not a good thing. That's not something you're going to be in a contentious divorce. If that's going to be the case, just know that that's not a harbinger of doom for any divorce.

Mediation is not going to work at that point when they Won't let you back in the house.

That's not going to work. No, no. Yeah. But yeah, if that happens, it's going to be hard because then if you want to take your stuff out, your possessions, we can't do it legally.

Now how do you get yourself off? You know, as everything's split up, you're finally done, you know, it's done with it. How do you get your name off the mortgage or off the credit cards or off the car loans or off the other debts? How do you do that?

Yeah, well, I say the big one is definitely the house. Obviously if you own a house together, that's going to be probably one of your biggest, more than likely your biggest asset. And there's lots of strategies to do it. You can, I've seen, I've heard of scenarios where both decide to stay living in the house as divorced, as a divorced couple. I've heard people being separated but you know, they switch one week on, one week off in the house. Also a strategy, I think the more common one, and I'm trying not to, I've heard it all. These are my friends that have done this too. So I'm surprised constantly at this stuff. But I think a very common one though is to split it up like you said, get off the mortgage and for liability purposes and just kind of, just so you don't have to talk about this, it could be the best way to do it so you really get off the mortgage. So if somebody stays in a house, what they're going to want to do is refinance. That's really the only way to get off the the mortgage. So just like you did originally when you took out the mortgage, you'll have to pass the lenders eligibility requirements to refinance the loan to show that you'll be able to make the payments and live up to your end of the deal. But this time the lender is looking at your situation and not the combined situation. So the story may change. So that may be difficult. And then once that is successful, assuming that's all good, you will need to do, you'll want to get the ex spouse or the spouse that's not living there do a quit claim deed. And so it's a process. You go through the lawyer and basically the spouse that's out of the house gives up any right to the property and then that at that point it's a common way to do it is you refinance and you can use the money from there to. So you essentially buy out the ex Spouse that moved out.

So I guess I worry about this scenario where you're, you know, you're trying to get your name off the mortgage and they can't qualify to refinance. I mean, can the court somehow order them to either refinance it or sell it so that you can get off the mortgage? Or, I mean, what's your. What. What are your options there?

It's a very tough place to be. Again, if you, if you do not qualify, you may have to sell it. Yeah, and that's tough, too, because at that point, you're probably in a bigger house and you will likely need to downsize. I mean, if you have custody of the children, if you have kids. Yeah, it's tough. You may have to sell it, be forced to sell again. Never think of yourself having to be in that situation, but it can happen.

Let's talk about valuing assets when you're splitting them up. Now, obviously, some of this stuff's really easy, right? I mean, it's easy to value your brokerage portfolio. You just got to pick a date to do it on. But there are other assets that aren't so easy to value. The house, maybe investment properties, maybe a small business or your practice. What are the procedures there?

Yeah, you're right. The retirement accounts, all that, it's pretty straightforward. But the stuff outside of that. So, yeah, you can split it up into the house. So I would say for the house, the best thing to do when, you know, you're separating is to get. I mean, you can get it basically. You get the value of the house reevaluated.

Or you can just buy an appraisal.

Basically, yeah, you get an appraisal. Some people just look at. They'll even look at Zillow, for example, or Redfin, and just see what the appraise, what their estimate is. That's a quick and dirty way to do it.

I mean, what does the court require? Does it just come down to whether you all dispute it or what?

Yeah, exactly. So, yeah, it's whatever you choose, whatever the two spouses decide to do.

So if you can agree on a price, no big deal. Otherwise, you're spending 600 bucks on an appraisal or $10,000 on a business appraisal.

Exactly. So that's. So that's for the house, and that determines how you split it up. If it's 50, 50, and then you buy out. That's one scenario. But then talking about a medical practice, which a lot of docs have, so that's going to be. That's a way, way trickier thing. And bottom line is you'll probably need to have somebody come and hire somebody to appraise it for you. And it takes into account the physical equipment that you have there and then also evaluating what your business is worth. So that's not something that you can just. It's hard to just put in a calculator, spreadsheet. So you probably need to hire somebody for that. And then in terms of whether that's marital versus non marital, another big issue. Right. So that's going to be determined on a lot of times when you start the practice, it was before the marriage or after the marriage. And then also there's even scenarios. So if you start. Started during the marriage, the practice during the marriage, and it grows and it does very well. And then to make it even more complicated, say that your spouse worked at that practice or sacrificed and didn't work and stayed at home to take care of the kids, then absolutely. That's actually a lot of times will be considered a marital asset. That's a big consideration. You don't think about that stuff when you start a practice. But if there's anything maybe this talk can kind of at least put that on the radar. Yeah.

And that's going to affect your partners too, in that practice a lot of times.

Big time. Yeah, big time. Yeah.

Interesting.

Actually. So a lot of partners will actually. And residency interviews you don't like. You can't ask all your marital status or what your relationship's like. But I think, you know, if you're in business and you're looking for a partner, you want somebody that's pretty rock solid for a lot of reasons. You know, you want to know that they're. This is not going to happen.

So let's turn now to some other aspects of planning. Why is it important to reevaluate your insurance plan, your trusts and your beneficiaries when you get divorced?

Yeah. That's not. That's something that you don't. That's like when you, when you're going through a divorce, you're not thinking, oh, I gotta. I gotta change my estate planning. I've got to change my beneficiary. So I think it's something that's often overlooked and can be very significant in the long run. I'll tell you, I did this. I looked at this again. I was. I've been divorced now for about two, three years. But honestly, during COVID I just started rethinking things a lot. Just like, oh, what, like what would happen If I passed. But what happened if something else like horrible happened?

You know, a lot of us are doing, are doing that in Covid. I talked to an insurance agent the other day and he said you wouldn't believe how much more volume we've had the last year. Just in docs wanting, you know, term life and disability insurance.

Yeah, I mean, I'm like, I'm an anesthesiologist, I'm on Covid call. I'm putting airway and oddly I'm thinking about this. It's like I'm taking care of COVID patients. It's like, what if I get this? I'm terrified. Especially March, April time. So anyway, that's why I really kind of got re engaged. And it's like I gotta talk to my estate attorney. I gotta see what's going on. And so basically. So if you've got a revocable trust, which I had. I have, I wanted to make sure. So it's not the long joint family trust anymore. It's just me now. So. And I want to make sure I got to change that so that my ex wife is not a part of that anymore. In addition to that. Well, actually the beneficiaries were always the children. And so that part didn't really change too much. But you got to change the name of it. It doesn't apply anymore. And then when you're looking at. And this is actually the part that really kind of, I think is interesting, long term disability. So definitely recommend everybody have that if you don't get it unless you know you're financially independent or going to retire soon if you have it again. For example, I had long term disability. That accounted for that. I had my spouse there. If I got disabled, I at least had her as a cushion. Now some people will say don't do that. Just account for as if. Don't even account what your spouse is doing for a job. But I did. So my disability at the time was $7,000. And I realized if I get disabled, $7,000 is not going to cut it. Per month is definitely not going to cut it.

Be a dramatic decrease in your lifestyle.

Yeah, exactly. Right. Yeah. So I'd have to. Yeah, I mean it wouldn't cut. I mean when you count child support, you tell mortgage, you know, I bought a house during. Near the tail end of the divorce or not way past the divorce, not during the divorce. But yeah, I knew my budget, I calculated my budget. $7,000 was not going to cut it. So I doubled it. I increased it 15,000 and luckily was able to do it without too much of a hiccup. And so yeah. Did my premium go up? Yeah, it doubled also it went from 240 to 500. So. And the other part of it also is that disability. So I said I have child support and I don't have aluminum. But some people may that can be used, that money can be used towards for child support. So on the other side, if you're the ex spouse and the doc gets disabled and they can't cover child support, like the situation I was in at 7,000, that's a problem. Right. They can't, they're no longer able to pay child support. So you can ask the ex spouse that's asking you to basically ask or request that they get a higher premium. And that blew my mind. It makes sense. I will say that say though at the end, everything is reevaluated at the end of the year. So if you are disabled and you are not making anywhere near the amount you were before, that will be taken account and you can do a court order to adjust things. So it's not the end of the world. But I just like to have my ducks in a row and I want to make sure that I can. I just want to make sure I'm at the best position I could be in. So that's my recommendation is to just re look at that. Same with life insurance too. So assuming you have term life insurance, want to redesignate beneficiaries, for sure you don't want whatever you've designated to go to your ex wife. I will say also on that that a lot of states won't allow that to happen and that just seems ridiculous. Right. If you're. And especially if they're remarried, that should not be the case. So yeah, life insurance, same thing. Reevaluate your beneficiaries and you may or may not need to adjust the premium. I mean a lot of people, I do 2 million and so you may not need to change that part. But definitely beneficiary.

Yeah, I can imagine a situation where you need more disability insurance and less life insurance.

Yeah, absolutely.

When you get divorced, you know, so maybe they can offset each other a little bit that way. Let's talk about student loans. How are student loans viewed by divorce courts and what strategies are available because of that?

Yeah, and student loans for sure. Very. It's complicated, but in a way I'll try to simplify it. So basically if you got the student loan before the marriage, it's yours. The person who took it out in General, that's going to be the case. And if it's during marriage, and especially if you, the spouse cosign, then it's a marital asset. But for the most part, it's going to be the person who took it out. There are specific scenarios that I've heard of. I think I saw one, I read about someone, one in New York where basically if you graduated, if you've completed your training or finished your med school and got your degree during marriage, then it was considered a marital liability. So I just read that. That was one thing that I read.

So it could be on a case by case basis, then?

It could be, yeah. But I would say for most people out there, it is your burden to, if you're the one taking that loan is your burden. And if you have before the marriage that you're, it's definitely going to. Almost definitely going to be your burden.

So if your marriage is on the rocks, pay on your student loans, not your spouse's. Is that what you're saying?

Yeah, it's a tricky scenario, right?

I mean, all these planning strategies sound terrible, right? But this is basically the way it is. You know, paying on yours is better than investing is better than paying on theirs, you know, that's basically the way it works.

Yeah, right.

I'm looking in the video, my face is all red. I'm embarrassed just saying it. Right. But that's the strategy, you know. All right, well, what about. This is something that I've always wondered about, right? Are divorce courts and divorcees smart enough to recognize the difference between a Roth account and a tax deferred account? And is there an adjustment made when assets are split up for those two things?

You know, I think coming from your perspective or like our perspective in the WCI world, it probably doesn't really seem fair about how, if you really dig into it, but like we mentioned before, it is straightforward and there's really not that much interplay between the two. So if you're talking about like for example, if you're talking about a Roth ira, so you're dividing a Roth, you're going to want to do something called a transfer incident to divorce. And so that's basically you're saying that your IRA division is going to be treated like a transfer incident to your divorce and that no tax will be assessed on separation and that makes sure that you're not taxed on it.

Right. I totally understand that. But can you stick the spouse with the tax deferred account and keep the tax free account yourself? That's the Question.

Yeah. So the tax deferred stuff, you do a different thing like a qdro, which is a qualified domestic relations order. That's also pretty straightforward. But I will say that once that is separated, they do. So there's no. If it's done correctly, you got to make sure it's done correctly or you will pay no taxes, you'll pay no penalty. But you're talking about, when you're talking about sticking to somebody like, you know, preferentially taking from one side to the other, it's a case by case basis. And I would say if, you know, you weren't you and I kind of dug into it, you probably could figure out a way to do it. And the other person may not know.

Well, even if they do know, right. The lower earner, there's going to be more overall wealth if the lower earner gets the tax deferred account and the higher earner gets the tax free account. Even if you make an adjustment for the fact that, yeah, they got to pay taxes on that, that's still the way you'd want to set it up for the most total wealth between the two of you. And I'm just curious if divorce courts ever address those issues or just don't think about them.

Yeah. I'll give you an example. In mine, they. They lumped together just retirement, just retirement, ira, tax deferred, whatever, and they just split mine in half and then countered with hers and then just made the adjustment so mine was more and so I had to pay. And basically what they did is they did what you're talking about, which is they gave her the split from my 403. So that's what they did.

So she got tax deferred money and you got to keep all of your Roth ira.

Yeah, exactly.

Yeah. So, I mean, it worked out to your benefit if they looked at it all as the same money.

Right.

You know, that's kind of the sense I've always had, is that they're not smart enough to think about that issue. But it really is a big difference in money, especially if people are splitting up late in life. And this is most of their assets are, you know, qualified retirement accounts. All right, what about this? I'm curious. You mentioned 80% of people can pull this off with a mediator. And I guess that really answers my question of what percent of people can really decide on all the issues, you know, both custody as well as splitting assets and liabilities without going to court. I guess that's 80% too, huh?

Yeah, I mean, I think it's going to be a little bit of bias there. Right. So your 80% of success is going to be the people that you already know. You probably, it's the sample size is people that are probably not contentious and they're going to get along, but people are going to be contentious. They're not even thinking about mediation. So it's a little skewed, I think.

Oh yeah, good point. A little bit of selection bias there for sure.

Yeah, it really depends case by case, definitely selection bias. So I would say if you, if you're at that level where you just know it's not contentious or you just don't have a lot of assets to really worry about, you probably can do it with mediation. I would really caution against not using a lawyer though, to at least give a once through or twice through. But this stuff can really affect your long term, your agreement. I mean, you can do court orders to change it. It's a living document that you can change your, whatever court order, whatever your divorce agreement is. But some of the stuff like your retirement accounts, once that's given, you can't get it back. Right. So you want to make sure it's done correctly. I really recommend doing a lawyer just to give at least a look through it and make sure everything looks good.

Now you mentioned in your presentation that trends with alimony are moving towards smaller payments for shorter periods of time. Why do you suppose that is?

I don't have to address Albany personally, so I don't have any personal experience with this. But I do know that in the past two years there's been a new rule. I think that new rule that was passed by Congress has affected that trend of making it less alimony and less probably shorter period of time. So basically that new rule which was in January 1, 2019, there was a tax cuts in job act. So basically if you're divorced starting January 1, 2019, not a day before, but it has to be at that date and beyond, it eliminates the deduction for alimony payments for the payer. And then on the other side, the recipient of the alimony is no longer to pay taxes on those payments. So as a payer, definitely not a good situation. As a recipient, a very good situation. So for example, let's just say that you got divorced after 2019 and let's just say you're paying $10,000 a year for alimony. You will no longer get a deduction for that and you will have to pay tax. There's no advantage to that. And the recipient will not Pay any tax on that $10,000 that they receive. And I don't know. I mean, I can guess why they did it. The government ends up with more money. They actually said they expect that to generate about $7 billion in additional income tax revenue over the next 10 years.

Wow. Because the high earner no longer gets the deduction the low earner does, essentially.

Yeah, exactly.

Although it's like they didn't think it through. Right. Because if everyone really just adjusts to that, the alimony payments are just lower and so it's the same amount of tax revenue in the end, you know, if they really thought it through, it's just kind of a goofy policy. It just doesn't seem right, though. It seems right that it ought to be the person who's actually getting the income to spend the income ought to be paying taxes on it. I don't know. I mean, they're not going to change it because I don't think it's the right way to do it. But it's a little bit goofy that way.

Another reason that they may have done this is that enforcing these rules before was a little bit hard and it just kind of too much time and effort spent to really chase these people. But I don't know if that's true or not.

Oh, yeah, yeah, yeah. Maybe it was.

I don't know.

You had to send them a 1099 or something. I have no idea how they did it before, but. Okay, so we got some questions that came in from a listener. They wanted to talk about the taxation of alimony under current law, which you just did. They also ask who gets to claim the dependence on taxes. Can you talk a little bit about that? Yeah, because obviously there's some benefit there. Maybe the high earner can't even get a benefit from it, or there's probably some planning strategies around that.

Yeah. And again, this goes into a lot of how your relationship is or how it was. But there's lots of ways to go about it. I mean, you can go by who has majority custody, who spends most time with the kids. From my understanding, though, there is actually a phased out also depending on your income. So if you're a dual physician, for example, you may not really. Even if you're over $200,000 in income, you may not really. It may not really affect you at all. But some strategies you could do is if you want to try to be equitable or not even equitable, if you're just trying to work it out, you could do one thing where if you have one child one year, one of the spouse gets a child, the next year, the other one gets it. You have two children, you can do the same thing, two, one year, two on the other year, on the other person's or you can just split up. One child is on yours and one child's on the other. So that's one strategy. And if you have more kids, you just kind of figure it out. But that's one way you can get around that to make it feel more collaborative, I would say. But that's one way to go about it. You really have to try to choose to do that with your ex spouse. Another important thing I want to say about that too is that, for example, if you're head of household, I'm not an accountant, but I can go with the criteria of what qualifies you as head of household, which is what you probably want to do if you're divorced after your divorce. The tax credit at our physician level is only going to be around $600, not a whole lot. I would say actually the more bang for your buck is going to be if your employer offers a dependent care fsa. And that's going to be more important actually. So a state, so right now it's $5,000. So if you're in 35th percentile for your marginal, which is very common for a pretty big range, I think it encompasses most physicians, 35% of that, you'll save about 1,750, 1750. So that's much higher than 600. And I consulted my CPA a little bit and the new rule in 2021, start in March, it's kind of breaking news. So there's American Relief act and actually it raised the limit of your dependent care FSA from 5,000 to 10,500 for just the year 2020. So if you take advantage of that then and if you're in 35th percentile, you'll get a $3,675 tax savings for this for 2021. And that's you can imagine if you have a nanny that's dependent care, any of the situations, you'll hit that pretty easily. So for any listeners out there that are considering that that's a pretty big it's more important than the child, than the dependent credit that you're talking about.

You said that's for 2020 or 2021.

2021, 2020, it's still $5,000, 2021 this coming year. Right now it's raised and of course.

Remember for the listeners out there The FSA is use it or lose it. If you don't spend that money by the end of the year, you just lose it. So don't forget that when you put extra money in an fsa, okay, you're.

Talking about failing forward and talking about your worst failures, your most embarrassing. I'll tell you real quick, I did that. I did $5,000 FSA. And for some reason, all my receipts. Because you have to show that you spent that money on it. And all the receipts that I sent them did not go through. And I did not get the mail saying that they didn't get it. And I lost out on that $5,000 and I was obviously very livid. I called everybody. I could talk to anybody, talk to your manager, whoever it is, like, you know what, books are closed, nothing you can do about it. So, yes, use or lose it. And you better make sure that you get that. Yeah.

You know, there's another question from this listener that they had was about bonuses. Apparently they're getting divorced and one of the spouses gets a lot of pay as you know, restricted stock options and cash bonuses. Do you know how divorce courts look at those? Do they provide some sort of discount because it's not yet cash? Or how are those valued when they go to go to calculate splitting up assets and splitting and paying alimony? Any idea?

Yeah. So we're talking about alimony. So we're talking about alimony. That's so it's not that. I think the way that the question is frame is not exactly accurate. Maybe in their head it makes sense, and I certainly think in my head that can make sense. But it ends up being more complicated than that. Alimony is really determined on the lower earner's need and the higher earner's ability to pay. And it's not so calculated. What I mean is that there's a lot of factors that go into things like that standard of living established during the marriage, property interest. So calculating this is based on a lot of things. Not just these bonuses are part of it, but also stock options, retirement funds, all those things. So it's not as clear cut and easy as that calculation.

It's not just half their income.

It's not just half their income. It's much more complicated than that. Yeah.

Okay. What about HSA limits? I mean, I guess that's another reason to be able to claim one kid on your taxes because then you can make the family HSA contribution of 7200 rather than the single HSA contribution of 3100 so I suppose that's another planning point. Even if you're not getting a child tax credit, you might want to be able to claim a kid on your taxes to get that additional HSA contribution. But basically that's the way they work is you got to have a kid. A family is you and a kid or you and a spouse, and that gives you the higher limit. So if there's two kids and you both want to max out an HSA after divorce, you can do that as long as each of you claims one kid, right?

Yeah. So 7200 for if you have two kids. I mean, you could do the same thing with that too. And I've talked to my CPA about this too. And you can split the kids. That's another thing you do split the one kid on her insurance and one on ex spouse's insurance, one on the others. And then you can actually both contribute 7200 in that way.

But you can't do the baby Moses thing. You can't cut the kid in half and each claim half of it.

Yeah, probably not, I think. Yeah. Then that's another court, another lawyer fee you have to deal with.

Yeah, exactly. All right, well, we're getting to the end here. We better wrap this up here. But I mean, you've got the ear of the 30 or 40,000 doctors and other high income professionals by the time this is said and done, that's how many people are going to listen to this podcast. What else have we not talked about that they should know?

Yeah, I think, you know, I never thought I'd be, I never really wanted to be like a divorce talk. You know, this is so prevalent that I think it's important to talk about. So I think another thing that really to consider is something called a prenup. And I know that's a bad word in a lot of people's minds. And there's a lot of considerations. Some people don't like talking about it. It kills a romance. Some people have religious reasons why that wouldn't be the case. But all that aside, it's something that I think you should consider as a especially let's say if you're a med student and you've got massive debt, you're probably not in your head, you're thinking, why would I do prenup? I have negative net worth. But you have to realize that you're going to be a high income professional, you're going to make a lot of money. But I would say that prenup's not a bad word. If they're open to it. I think in an ideal city, there's a lot of pros and cons to it. Obviously, there's more pros than not in an ideal world. You can think of this as a way to open up the conversation to talk about finances. I know it's very idealistic to talk about it that way, and I'm probably living in a dream world by saying that. But it is definitely a way that you can definitely open up the conversation about finances. That could potentially help long term about how you talk about money and what your goals are. You know, I get it. It can't kill the romance. It's an exciting time you're getting married, but it should definitely be a consideration when you're getting married. You can also go post nup, too, which is after you get married and you discuss those things.

But that seems particularly hard to. To pull off a postnup, right?

Yeah, absolutely. Yeah. Less popular, for sure, but prenups are getting more popular. Definitely increased rate of prenups out there.

You know, I find it interesting that everybody says you should get a prenup, but nobody has one. Right. It's very fascinating statistic that way. And clearly, if you are getting remarried, you're getting married after you're established in your career, you got kids from the prior marriage. This is a must. I mean, you're doing your kids a disservice to not have this, but a lot of us got married when we were young and broke and poor and didn't have anything. And I suppose the. The consequences are probably less in those situations. If you think back, if you had had a prenup, do you think it would have changed anything in your divorce?

Yeah, that's a good question. But I mean, I think given that we were both physicians, I don't think it would have really changed a whole lot. But if there's a scenario where there's a big discrepancy, I think that would have changed. But yeah, I think it would have. But I don't think it would have in my situation. And that's actually a reason to not. You know, if you're considering not getting prenup, it's like, well, a lot of times the court of law will favor. It could favor your. It's enough so you don't need to do a prenup. You don't have to broach that subject with your future spouse, and you don't have to pay money up front. But yeah, I don't think it would have changed a whole lot in my scenario.

Well, Dr. Wong, thank you so much for coming on the White Coat Investor Podcast, opening yourself up, being so vulnerable and being willing to talk about such a sensitive subject. I know there are listeners out there who really appreciate what you just said, said about divorce and the ending of your marriage and all the financial ramifications it's had over the last two or three years for you. But I really appreciate you coming on.

Yeah, absolutely. Thank you so much. All right.

That was great. I've been wanting to get someone on the podcast talk about divorce for a long time, so I really appreciate George coming on and doing that. I think a lot of you will find that very useful. Clearly, I need to go spend a little bit more time in the Old Testament. Those of you who are Old Testamentophiles will remember that it was Solomon who threatened to cut the baby in half. It wasn't Baby Moses that got cut in half. He was found in the basket in the bulrushes. But at any rate, don't send me hate mail about how I mixed up Moses and Solomon.

All right?

So in fact, as you're listening to this, as this drops, I'm just getting off the river. I'm just coming out of the Grand Canyon. So don't send me hate mail. Anyway, I don't want to come home to hate mail. I'll already have a big email box full of questions and things to do. So, yeah, don't make it any worse than it's already going to be when I come home from that vacation. If you are finding our podcast informative and helpful, check out our website. Since 2011, we've been working hard to provide valuable personal finance and investing information. Through thousands of blog posts written by an array of authors, you can find information on how to manage your student loans, fix and avoid common financial mistakes, understand your retirement accounts, optimize your investments, find professional help at a fair price, get started investing in real estate and so much more, all at no cost to you. You can find out more about the courses we offer, the conferences we put on, the newsletters we provide, and interact with other WCI readers through our online forum. Head on over to whitecoatinvestor.com to start learning today. You can do this, and the White Coat Investor can help. All right. Don't forget to stop by the WCI store that's at shop. We got hats, books, mugs, T shirts, water bottles, journals, pens, you name it. And I'm sure there'll be more to come as the years go forward. Thanks for those of you who have given us a five star review on Apple Podcasts. That really does help give our show a huge boost and help new listeners discover the show. And we appreciate those of you who are telling your friends about the podcast. We hope it's useful to you and aids you in making your life healthier, wealthier and wiser. Keep your head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor Podcast.

My dad, your host, Dr. Dalle, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.