For Divorcing Women, Becoming Financially Knowledgeable Is Crucial

By Danielle Andrus in ThinkAdvisor.com

This article discusses the need for women seeking a divorce to make sure they get solid financial information before consulting with an attorney.

I think that this advise holds for men as well.

Whether you are the primary breadwinner or not (or the husband or wife), getting a solid handle on your financial situation (assets, debts, income and expenses), and understanding how this is likely to impact a financial settlement with your spouse, before you meet with an attorney, can save you a lot of time and unrealistic expectations of what the settlement might end up being.

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How much can a divorce cost?

Here is an interesting article in Huffington Post about the cost of divorce using different processes.  The authors do not quote any sources, so it is difficult to tell how reliable their numbers are.  However, from my experience their ranges seem about right in relative terms.  Committing to be non-adversarial is by far less expensive than the adversarial approach.  And, in many cases, you should be able to get a fair result, without spending a fortune, by using a non adversarial process.

Amazingly, people will spend a lot of money arguing about things to punish their spouse or “for principle”  – spending more money that the issue is really worth.  Sometimes using the litigation approach is necessary – because one (or both) of the parties is being unreasonable, they cannot communicate, trust has completely disappeared, mental health issues, hiding assets or income, abuse, etc.  But,  for many people, however, the adversarial/litigation approach is an unnecessary and expensive complication to an already difficult life transitional event, and often makes it much more difficult for the children because of the additional conflict it can generate for the parents.  I often recommend to people to try mediation first, consulting with attorneys as needed, to see how it goes.  If mediation is not successful, then you can escalate to collaborative, cooperative or litigation.  I think that most people would like to make their own decisions, rather than rely on a third party (Magistrate or Judge) to make life decisions for them.

I have had a number of clients who tried litigation and then came to me,  after spending $100,000  (really!) on legal fees, to resolve the remaining issues through mediation and help them complete their divorce. Sure, by then they were weary of the fight, fed up of the litigation process, and tired of the attorneys not getting things finished.  But they then had $100,000 less for themselves and their children.

Sadly, when people considering divorce talk to friends and family about their impending divorce, they rarely will hear about the success stories, but rather hear the horror stories about bad experiences others have had.  The divorce process does not have to be horrible.  The professionals you hire should be there to help you through the process,  and to make the process easier, not make an already challenging life event even worse.

If you both want to have a dignified divorce, you can.  First, you have to have a positive attitude about coming up with a fair agreement for each of you and most importantly, what is best for your children.  Second, you need to choose, and manage, any professional assistance you hire to make sure they follow your wishes to have a dignified and non adversarial divorce.  Third, you should agreed  some mutual goals about the process and what you want for each other and your children.  Fourth,  see it as a business transaction – not a way to remedy what went wrong in the marriage.  Fifth, getting educated on the law, your financial situation, the options, and the consequences of potential solutions is important.  This allows you to negotiate and make decisions from a basis of knowledge and strength.  Finally, don’t make agreements unless you fully understand them and believe that you making the optimal decisions for yourself, your spouse and your children.  If you need to consult with an attorney, or need help in negotiating your agreement, then, by all means, get the help you need.

Don’t Let Divorce Wreck Your Finances

An excellent article from CNNMoney describes many of the issues people need to take into account when planning their divorce.

The key message from the article is that thinking through carefully, not only the division of assets,  but your future cash flow, is critical to your mid to longer term financial health.  As part of both our consulting services and our mediation service, we help people with financial planning for the future so that they have a sound financial footing for moving forward after divorce.

The divorce process can be very expensive if you decide to punish each other in the process, or try to hide assets, or just be unreasonable.  You can often achieve an agreement you both think is fair without resorting to costly litigation, but only if you decide you are going to approach your divorce as a win-win and not a win-lose.

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The Power of the Apology in Divorce

from Huffington Post

“For divorcing and divorced spouses, a heartfelt apology can work wonders in beginning to heal relationships and in settling disputes. Insincere apologies, however, when used strategically to control or manipulate — to try to win or get something, can wreak havoc on divorce negotiations and damage already fragile relationships.”

“Between divorcing adults, an apology, the genuine article, can promote dialogue, decrease emotional distance and even help to re-establish trust. At its very best, it is a healing gesture and a symbol of willingness to take responsibility for misbehavior and to own up to being human. It can also communicate a desire to truly hear and understand (and empathize with) the emotional consequences of the wrong doing that have been brought upon the injured spouse.”

In my experience as a mediator, it is much harder to have “grown-up” conversations and win-win decisions when there has been damage done to one of the parties and no apology by the other.  The damaged party often wants revenge, or to punish, the other party.  Real apologies can be very powerful in mitigating at least some of the hurt and allowing the parties to have positive dialogue about the future and the decisions that need to be made.

If you want to stay out of litigation, with the cost and hurt that it brings, then following the advice in this article might save your a lot of heartache, as well as dollars.

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How to Save Money on your Divorce

 

Divorce can be very expensive.  I read recently that the average cost of divorceAlimony, Spousal Maintenance and Divorce in the United States is $15,000.  Most attorneys ask for a $5,000 – $7,500 retainer per client just to get started.  A business valuation can cost $12,000.  A one day settlement conference with attorneys and a mediator can cost $12,000, not including any preparation. A Parental Responsibility Evaluation can be $7,500.  If you consider that the median household income is around $50,000, the cost of divorce is a significant financial hit on families going through divorce.

Having worked as a divorce financial specialist and mediator for the past ten years, here are some things that I have found help families to save money on their divorce.

Attitude. 

Win-Win v Win-Lose.  Many people, on being told that their spouse wants a divorce, feel hurt, betrayed and angry.  Some want to punish their spouse for wrong-doing.  By taking the attitude that the spouse will pay for wanting to end the marriage – going for the win-lose – will likely result in both of you losing and the attorneys and other professionals involved in your dispute getting paid rather well (with less money for you and your children in the future). By taking the approach of “how can we manage the dissolution of our marriage so that our children and each of us will be OK and have an agreement that we both think is fair”, will result in a less costly and less painful process.

Communicate well with your spouse.  Divorce is basically a life transition event.  With a little help, many couples can work out all the details of their divorce without resorting to litigation.  By taking the high road, and asking yourself “What action can I take that will least likely end in regret?” and “If I do or say this, how will it help me with my goal of a peaceful divorce?” you will save both emotional stress and money.

Avoid Litigation if you can. Understand that using the litigation process to punish your spouse is going to cost you both a lot of money, and the final result will be painful, both financially and emotionally.  You will be unlikely to co-parent effectively if you have been the subject of each other’s testimony in court. Sometimes you cannot avoid litigation because your spouse’s demands are unreasonable and you have to have a third party (ie the Court), make decisions for you, but if you can work together to reach an agreement, it will save you a lot of money and heartache.

Don’t be dishonest with money.  If your spouse suspects you of hiding money or spending money on the wrong things, it can cost a lot of money in legal and forensic accounting fees to track down hidden accounts or money spent for non-marital purposes (dissipation of marital assets).  And, this will contribute to increasing the conflict (and the cost) of your divorce.  It is best to be transparent and honest, and keep the money for yourselves and your kids.

Be willing to negotiate.  Understand your needs and those of your spouse and children.  Try to think through for any position you take, how it is good and bad for you, your spouse and your children.  Understand that the cost of fighting for something may be more than it is worth.

Take responsibility for your own actions.

Know what you can change and what you can’t.  You can only change your own behavior.  You cannot dictate what direction your spouse will take.

Talk to a therapist or divorce coach.

If you have trouble keeping your emotions (and words) in check, are triggered by things your spouse says, or are suffering from depression or anxiety, seek out a divorce coach or therapist who can help you through the divorce process.

Do your Homework.

Educate Yourself.   Read books on how to have a friendly divorce.  Avoid the material on how to “win” or “beat” your spouse in divorce.  These will only fuel the fire for more conflict.

Get your financial records together.   Find out what financial documentation your State requires you to provide to your spouse and get those documents together yourself. Order a projection of benefits if you have a pension plan.  Find/request records of pre-marital assets (such as IRAs or 401(k)s that you had before the marriage).  Organize your records by topic (real estate, taxes, income, bank accounts, investments, retirement, debts, etc), index them, and make copies (for your spouse and your attorney).

Get Advice Early. After you have your financial information together, consult with a Certified Divorce Financial Analyst to get a realistic picture of what you might expect financially from a settlement.  Consult with an attorney about the legal issues and processes that might work for your situation.  Make sure your expectations of process and outcomes are realistic.  You can spend a lot of legal dollars on chasing goals that have very little chance of being achieved.

Start planning your future.  If you have been a stay-at-home Mom/Dad and are the lower earning spouse, then start figuring out how you are going to become economically self-sufficient.  Will you need further education, specialized training, an internship?  What will this cost? Will this require day care for your children?  What will be your projected income once you start working?  Alimony/maintenance will not last forever, so you need to get focused early on what your needs will be.  This will also make the negotiations on alimony go much smoother (and less expensively) as it is much easier to work out a mutually acceptable alimony plan if the receiving spouse can articulate his/her realistic needs.

Try mediation or collaborative divorce.

Using a non-adversarial process is typically less expensive and results in less conflict and better decisions – because you make them yourselves — than litigation.

Choose your attorney carefully.

Usually it is best to work with an attorney who focuses on family law rather than other areas of the law.  Get recommendations from friends and family.  Have a list of questions to ask at the initial meeting.  Get a written fee agreement.  Ask if you can hire an attorney in a consulting role (sometimes known as unbundled legal services) to get their advice, but not represent you to your spouse or the court.  If necessary, you can “upgrade” to full representation if your attempts at getting an agreement with your spouse fail and you need more intensive legal help.

Don’t fight over the children.

Unless there is a good reason why the other parent should have no, or restricted, parenting time, the Court is likely to award something close to 50/50 parenting except for very young children.  Thinking through what is in the best interests of your children, which normally means being parented by both parents, and how their best interests link into what works for both parent’s schedules, will result in a better parenting plan than one that is imposed by the Court.

Don’t fight over household belongings.

Take an inventory (with pictures) of everything and try to work out a fair division of your household goods.  If you need to put values on your belongings, use garage sale prices.  You are both likely to need to set up a new household, so thinking about how that might best happen cooperatively will result in a better outcome.

Money issues.

Retirement Funds. Don’t take money out of your retirement plans before you are divorced.  Doing so can cost you an extra 10% tax penalty, and may mean that you are paying tax at a higher rate on the withdrawal than you would after the divorce.

Business Owner?  If you have a business, your accountant can get together much of the documents that will be needed for a valuation.

Equitable does not necessarily mean 50/50.  It may make sense for one of you to receive more than 50% of the marital pie, due to earning power or short term needs.

Be your own investigator.  If you think there is money missing, review bank statements to see if there have been transfers to unknown accounts or payments to unknown sources.  Are there forgotten retirement plans from previous employers? Find those retirement plan statements from before your marriage.

Monitor the post-separation spending.  Keep your own under control and monitor your spouse’s spending.  If your spouse’s is getting out of control, then it may be best to divide your accounts as soon as possible to protect assets.

A dollar is not always a dollar.  Understand that there are assets that depreciate, and assets that grow.  A car worth $20,000 is different than a mutual fund account valued at $20,000.  An investment account with a face value of $100,000 may have a taxable base which means that when the assets are turned into cash, you will have to pay tax on the gains.  Most retirement accounts consist of pre-tax money, which means when you cash them out, you will have to pay income tax on them.  They are valued differently than post-tax accounts, like Roth IRAs.   Some annuity accounts have riders which make them more valuable than their cash value.  Similarly, pension plans are normally worth more than the “cash value” on the statement.

Keep the House?  It is easy to insist on keeping the marital home.  But, you need to remember that owning a home has a lot of costs in addition to the mortgage and utilities, such as regular upkeep and major repairs.  If you decide to keep the house and then find out that you have to sell it a year later, you will have to bear the costs of sale on your own, whereas if the house had been sold jointly, you would have shared those costs.

No regrets.

Sometimes people just want the divorce to be over, and will make hasty decisions before they have a full understanding of the options and implications.  While this approach might save some emotional energy and professional fees in the short run, you will likely regret over the longer term those decisions you made in haste.  It is much better to take the extra time during the divorce process to make sure you have an optimal agreement that works for you both and your children.

Conclusion.

Having the right attitude and approach to divorce can save you tens of thousands of dollars.  I know many cases that have been completed for less than $5,000 which could have cost $50,000 or more.  Battling it out in court rarely results in a decision that is better than a negotiated settlement when all the financial and emotional costs are taken into account.  However, you need to do your homework, get good advice, and not let your emotions take control of your logical self.

Is Divorce Really a Legal Problem?

At the end of the divorce process, you end up with a legal agreement which is filed with the Court and can be enforced through the Court system, this does not mean that the divorce process needs to be a legal battle – unless you want to make it one.

Divorce is a life transition issue.  If you can agree on all the issues you need to agree on, and stick to your agreement, you don’t need to get involved in the legal system at all (except to file your agreement with the Court).

Most of the issues that need to be agreed on are practical issues.

  • How will you co-parent your children?
  • How will you divide your assets and liabilities?
  • How will you provide financial support to the lower earning spouse to help him/her become economically self sufficient?
  • How will you each provide financial support for your children (ie child support)?
  • What will you do with the marital home?

Many people are able to make these decisions with some guidance and support from professionals. They do not need, or want, a third party (the Court) to make their decisions for them.

The law is there to tell judges and magistrates how to make decisions when you cannot make them for yourself.  Thus, attorneys need to know the law so they can argue your case in front of them, and also guess how a judge or magistrate will apply the law to your particular situation.   If you both agree on the issues, you can decide what you want to decide without court involvement as long as it is in the best interest of your children and the agreement you come up with is not “unconscionable”.

Sometimes there is a power imbalance between the parties or one of the parties is not able to fully participate in the decision-making conversations.  In these cases, having collaborative attorneys assist with the negotiations can help you get agreements that will be fair and work for you both.

Of course, if you are trying to punish the other person, the other person is just unreasonable and will not compromise, or if there is not full disclosure of all the information, then you may not have any choice but to use the Court system.