On FIRE—A formerly fringe financial trend is gaining popularity, enabling some couples to retire early. But does it all go up in smoke in a divorce?

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Although it’s still out of the mainstream, the FIRE movement is becoming more popular, especially among millennials and the Silicon Valley tech industry.

FIRE stands for Financial Independence, Retire Early. Adherents commit to a program of extreme savings and investment—often severe frugality—to gain the financial freedom to retire early and the flexibility to live the way they want, untethered by a nine-to-five grind.

The pandemic further fueled the movement. “[A]s much as anything else, the pandemic has spurred individuals to evaluate what’s important to them, with some deciding that their job doesn’t make the cut,” says Kiplinger. FIRE subscribers seek financial independence to build a life around what they love, what makes them happy.

FIRE practitioners save 50-70% of their income, aiming to put away 25-30x their yearly expenses (typically at least $1 million), then withdraw no more than 4% per year in “retirement.” They also focus on building passive income streams through investment (including rental properties, cryptocurrency, etc.) and side hustles, which allows them to leave regular jobs much sooner than traditional retirement plans and budgets—years or decades before they turn 65.

FIRE plans aren’t one-size-fits-all, as Forbes points out. Some people go to extremes—foregoing virtually all creature comforts, from coffee shop lattes to heat and A/C. Others practice a more moderate version; they may not plan to retire fully but work only part-time or pursue a passion project rather than a regular job.

What happens in a FIRE divorce?

As a married FIRE couple, you planned diligently, worked hard, saved, invested strategically, and lived well below your means. Maybe you’ve already reached the goal: financially independent, effectively retired, and living off the dividends of the amassed wealth you strived for.

Then the thing you didn’t plan for happened: your marriage fell apart. Can your FIRE plan survive?

It’s possible.

All divorcing couples must sort through the same main legal issues—property division, spousal/child support, and child custody—. Still, there are some additional critical considerations for FIRE couples who split. Any post-retirement divorce is challenging, and early retirement adds a layer of complexity to the essential questions.

Property Division. In any divorce, you must go through the process of dividing your assets. California is a community property state, which means that with few exceptions, ALL assets acquired during your marriage will be split 50/50 in a divorce, as will any shared debts. As FIRE practitioners, you may have multiple and unusual income streams. You’ve been accumulating significant assets of diverse types; some, such as cryptocurrency and retirement accounts, may be highly valuable—and complicated to divide. And you’re relying on these amassed assets and passive income from your investments for most of your living expenses in retirement. If your FIRE plan went exceedingly well, you might be retired yet still many years away from eligibility for social security benefits.

Child custody. For some couples, both parents devoting intense time to raising a family was an exact reason to undertake the FIRE lifestyle, which may impact how you approach custody arrangements.

Child/spousal support. As it’s somewhat unusual to have two retired parents with dependent children, California’s standard child support calculator may not be adequate. Spousal support calculations depend on many factors—including income, higher/lower earner, earning capacity, the standard of living, retirement, and more; many of these factors are directly affected by FIRE.

Tips for protecting your FIRE plans in a divorce

Collaborate. High-conflict divorces are lengthy and expensive. The judge may need to familiarize themselves with the intricacies of FIRE planning. You could burn through an enormous chunk of your hard-earned savings battling it out in court. You’ll have a better chance of preserving the FIRE lifestyle if you work with your attorneys to reach a marital settlement agreement.

Consider your future lifestyle. Your FIRE planning has already required you to live frugally. But until now, your ability to save so aggressively has likely hinged, at least in part, on having a shared household; it will cost more to live separately. Take a good hard look at your budget and expenses; think about where and how you want to live as a single person. How much are you willing to spend on that? Is a higher standard of living worth a return to work? Remember that you adopted the FIRE lifestyle to align with your values—this can help guide your thinking.

Be willing to negotiate. Working together amicably can help facilitate your FIRE lifestyle post-divorce. Community property law leaves room for negotiation. Consider what’s most important to you and where you’re willing to compromise. For example, would you trade your share in a piece of real estate in exchange for a liquid asset?

Be transparent. Don’t allow panic over the possibility of losing your FIRE savings or your progress toward achieving a specific goal cause you to make poor decisions in the divorce process. Full, detailed, open financial disclosure is essential for a fair settlement. Do not attempt to conceal or lowball assets or inflate living expenses—this could result in steep penalties. At the same time, be thorough in analyzing your spouse’s disclosure.

Don’t go it alone. Your complex circumstances require professional guidance. You will each need an attorney that’s experienced in high assets divorce. Your lawyer can also help you determine what other experts (financial planner, appraiser, actuary, QDRO specialist, etc.) are needed in your case.

The experienced family attorneys at SFLG are skilled in handling complex financial circumstances. We can help you navigate the unique concerns around FIRE divorce.

By Debra Schoenberg



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