GOING IT ALONE : Newly Single Woman Must Carve Her Own Path

Barbara Schultz is torn between a husband and a son.

The Chicago native recently separated from her husband and moved to the Los Angeles area. She’s trying to secure her nest egg while untangling her life and finances from those of her soon-to-be-former husband.

The problem? Schultz, 58, has been getting conflicting advice about her life and money from her 32-year-old son, a currency risk manager in Chicago, and from Ernest, her estranged spouse. No matter what she decides, someone gets angry.

Women who are in the midst of ending their marriages often get inundated with advice--well-meaning or otherwise--that is in conflict with what they really want, said Esther M. Berger, a certified financial planner in Beverly Hills and author of the new book “MoneySmart Divorce.” The result: They often feel paralyzed.

“You need people in your life who can provide you with clear, well-thought-out, constructive advice,” Berger told Schultz. “You need advocates who have one interest and one interest only--protecting your interests.”

The advice coming from Schultz’s husband and son, though well-intentioned, is hampering Schultz’s efforts to address the issues, both financial and personal, Berger says. Schultz needs to determine how she can make her money last through her retirement and whether she should buy a home in Southern California.

Schultz, a medical technologist before she retired a little more than 10 years ago, has nearly $1.1 million in a nest egg achieved through years of saving and careful investing.

When Shultz, then a widow, married Ernest 15 years ago, the two came to the marriage with an equal amount of assets. Currently, 54% of Schultz’s assets are in stocks, 16% in bonds and 30% in cash. The two recently sold the home they owned in Chicago.

Berger took a look at Schultz’s goals and portfolio with an eye to the challenges she will face as she goes through a divorce. Although Berger had several suggestions on the investment side, she said the first order of business should be handling the divorce.

Berger strongly urged Schultz to hire a team of professionals to help her through the divorce process. Specifically, she advised Schultz to hire a divorce attorney and a certified public accountant. Schultz’s finances are now handled by the same CPA who handles her husband’s, a situation Berger called “an accident waiting to happen.”

At some point, Berger said, Schultz should also hire a professional money manager to help her oversee her extensive portfolio. With Schultz feeling overwhelmed by the number of changes in her life, that matter can wait, Berger said.

Schultz expects to get a lump sum of money as part of any divorce settlement rather than ongoing alimony. The split has been amicable, and the two have made some preliminary decisions about the property they accumulated together. Ernest has told Barbara that their assets are being fairly divided, but Berger points out that it’s wise for any party to a divorce not to rely on such reassurances.

“Please don’t take his word for it,” Berger said to Schultz. “He may be protecting your interests, but it’s a sure bet that he’s protecting his own.”

Schultz, who is now living in a small apartment, knows she wants to buy a condominium or a home, and to put as little down for that as possible.

The question is whether that will be in California. She came here to be near a relative and to put some geographic and emotional distance between herself and her husband as she sorts out her feelings about their marriage. But she’s not sure if she wants to stay.

“It’s hard,” Schultz said. “The pull to be in Chicago is strong. My four children and grandchildren are there.”

Berger advised caution here, telling Schultz it might be better to wait one year or even several before deciding to buy in California. For most people, buying a home is as much an emotional decision as a financial one, Berger said, and Schultz might want to take some time before she decides.

If she does choose to buy, she should consult with her accountant, Berger said. In deciding the size of the down payment, she would need to consider not only a home’s appreciation potential, but also tax consequences and the time value of money.

For example, if her investment dollars can earn more than the interest rate charged on the mortgage, she might want to put down a smaller down payment. But if her portfolio is conservatively invested, it may not earn more than the roughly 8% rate of interest currently charged on a 30-year home loan. In that case, she might want to boost the down payment or pay cash for the home.

Now to Schultz’s retirement needs. Because she has such a large portfolio, it would make sense for her to hire a financial advisor who can help her manage it. That could cost Schultz fees totaling 1.5% of the portfolio’s value annually, Berger said, but Schultz said that’s something she can live with.

“It’s something I know I need to do, so I’ll stop listening to all this gibberish that people are telling me,” Schultz said.

Because Schultz is in retirement and plans to rely on income from her investments for the rest of her life, Berger advised her to take a more conservative stance, raising the portion of her portfolio in bonds, while reducing the stock portion and the cash portion.

If Schultz feels up to the task in the near future, Berger said, she would recommend shifting to a portfolio of 50% bonds, 40% individual stocks/mutual funds and 10% cash.

To reallocate her investments, Schultz will need to sell some of her funds or specific stocks. But there’s no rush to make these changes, Berger said. When Schultz is ready, though, she should have a financial advisor take another look to help her determine what to sell and when.

The 54% of Schultz’s assets now in equities is in individual stocks such as Dean Witter, Discover & Co. ($41.875 on Monday on the New York Stock Exchange) and American Power Conversion ($28.50 on Nasdaq), and in mutual funds such as the relatively new Acorn International (two-year average annual return: 18%) and the well-known Fidelity Magellan (five-year average return: 15.2%).

Berger suggests Schultz have only 25% of her portfolio in individual blue-chip stocks and 15% in international and small-company equities, either in individual stocks or through mutual funds, and possibly some in income-producing real estate investment trusts and utility issues.

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As for the bond portion of the new portfolio, Berger recommends a “laddered” approach. To ladder a bond portfolio, an investor buys bonds that mature in successive years in order to get current income from the bonds and also to ensure against losing out in times of rising interest rates--because one portion of the portfolio will mature each year or two.

In a period of rising interest rates, then, the proceeds of the maturing bonds would be reinvested at higher rates of interest.

It works this way: Say an investor has $100,000 to invest in bonds. Rather than put it all into bonds that come due in, say, 10 years, the investor would put $20,000 into bonds that mature in two years, $20,000 into bonds that mature in four years, and so on.

When the two-year bonds mature, the proceeds are invested in new bonds that mature in 10 years. The portfolio thus continues to mature successively.

Because Schultz has no tax write-offs, Berger suggests she consider concentrating her bond portfolio in municipal issues, which offer income that’s exempt from both state and federal taxes.

Are individual stocks too risky for someone of Schultz’s age?

No, says Berger. Because Schultz has a significant nest egg, she can own a large enough number of stocks so as to be properly diversified. “In a sense she’s building her own mini-mutual fund,” said Berger. Someone with a smaller portfolio may not have the wherewithal to be as diversified, and so mutual funds would be a better choice in that case.

If Schultz earns an annual return of at least 8% on her total portfolio, she can continue taking annual distributions of $65,000, increasing the amount by 3% each year to account for inflation. If inflation stays at today’s levels, she will be able to continue taking these distributions until age 90 without touching her principal. It also means she’ll have something to leave her children.

In fact, she’ll have plenty of leeway to do some other things she wants to do, such as traveling.

Women’s Investment Issues will be among 30 panels offered at the Los Angeles Times Investment Strategies Conference on Feb. 22-23 at the Westin Bonaventure. To register or get more information, call (888) TIMES97.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

This Week’s Make-Over

* Investor: Barbara Schultz

* Age: 58

* Occupation: Retired

* Annual income: $65,000 from investments

* Primary investment goals: Manage investments during divorce; realign portfolio for retirement; decide whether to buy a home in California.

Recommendations

Schultz should seek impartial counsel and not rely on advice from relatives. She should refrain from rushing into any dramatic changes, taking time to make sure she is making the best moves for the long term. She should put off the decision about buying a home and instead concentrate her energies on the makeup of her portfolio.

Current Portfolio

Schultz has nearly $1.1 million invested:

* About 54% in stocks, with 14% of that in individual stocks and the rest in mutual funds

* 16% in bonds

* 30% in cash

Recommended Portfolio

* Have just 25% of the portfolio in blue-chip stocks and 15% in international and small-company stocks, either in individual investments or through mutual funds. Some of the amount earmarked for stocks might be put into real estate investment trusts or utility companies.

* 10% should be in cash.

* The remaining 50% should be put in a “laddered” bond portfolio--that is, one made up of bonds that mature in successive years.

10 Tips for Women Going Through a Divorce

1. Don’t get overwhelmed. It’s easy to feel paralyzed by the vast number of decisions and changes going on. The situation is manageable if you approach it slowly and methodically.

2. Set priorities. Figure out what needs to be handled quickly and what can be put off. Set up a reasonable schedule that allows you to deal with one important decision at a time, ticking them off as you go. Don’t sweat the small stuff.

3. Ask questions. When you’re dealing with a host of highly paid advisors--attorneys, financial planners and the like--it’s easy to become intimidated and just accept their advice as gospel. You’re going to have to live with the results, so make sure you understand the implications of their suggestions.

4. Don’t feel obligated to follow other people’s advice.

5. Trust your instincts.

6. Decide what’s financially best for you. Many women are empathetic to the needs and wants of their ex-husbands and their children. But a divorce is a serious civil proceeding--one that results in a contract--that will affect the rest of your life. Make sure you seek an agreement you can live with. It’s not your job to take care of your husband anymore.

7. Don’t be put on the defensive. If you’re comfortable with a decision, you don’t need to explain yourself.

8. Don’t be shortsighted. Think about how your decisions will affect your financial well-being--now and in the long run. For instance, fighting for the house so your children won’t have to move may seem right in the short term. But in the long run, it can saddle you with a big monthly payment and a massive tax bill when you sell.

9. Accept that not every decision you make will be the “right” decision. If you make a mistake, try to correct it. If you can’t correct it, let it be. Beating yourself up won’t make it better.

10. Look ahead, not backward. Don’t make decisions that reflect old wounds and old behavior. Letting go of the past can only make your future brighter.

Sources: “MoneySmart Divorce,” by Esther M. Berger; Times staff

Meet the Planner

Esther M. Berger is a certified financial planner and a first vice president with PaineWebber Inc. in Beverly Hills. She specializes in helping women overcome their fears about money and helping them determine their own financial futures. She specializes in meeting the needs of high net worth clients. She is the author of “MoneySmart: Secrets Women Need to Know About Money” and the new book “MoneySmart Divorce.”