Divorce Team

You’re going through a divorce. You may feel that you’re watching your life crumble, including your finances. It’s tempting to want to save money by doing it all yourself. Whether ending the marriage was your idea or not, it’s a time when you’ll be making big decisions that are different than any decisions you’ve ever had to make. It’s not time to be penny wise and pound foolish. Because divorce isn’t an everyday occurrence, here are some pointers that can help you and save you money.

Too many people assume attorneys make things worse. With a good attorney, that’s not true. Many people have never had another reason to hire an attorney, so they don’t know a good attorney from a bad one. In a divorce, part of being a good divorce attorney is assuming you’ll be able to negotiate a settlement without going to court, but being willing to go to court if needed. Also, a good attorney isn’t going to make promises about the outcome. There is a range of potential outcomes if you go to court. So an attorney can give you an idea of what to expect, but very few guarantees.

A financial expert who specializes in divorce can be a huge help. Generally, the financial expert will be able to do some calculations to show you what several different financial settlements will look like. This expert will cost less per hour than an attorney and can go to court to testify in your case if necessary. A good financial professional who doesn’t usually do work on divorce cases may come up with some great ideas, but if those ideas won’t make it through a negotiation or a court hearing, it’s not the help you need.

If you have minor children, you might need some professional input there. Good parents generally agree that the well being of their children is the most important concern in a divorce. Many parents can come to a parenting agreement that works without professional help. But don’t hesitate to hire a parenting specialist if you can’t agree on issues about your kids.

Maybe the most important professional for you in a divorce is a therapist. Friends and family are important for emotional support, but sometimes they tell us what we want to hear. A good therapist helps you move forward with your new life. Therapy doesn’t have to be a long term commitment. Divorce is a huge life transition. Some objective help is worthwhile.

Once a divorce is finished, the courts aren’t generally inclined to allow people to have a “do over” because one of the former spouses changed their mind. The decisions you’re making will impact the rest of your life and they’re not the type of choices you make all the time. You owe it to yourself to make well thought out decisions and professionals can help you do that.

Revisiting Your Divorce During the Recession

When a divorce is final, the spouses or a third party like a judge or arbiter have made decisions about how assets, debts, and cash flow will be handled.  It’s common to have requirements to sell a home and divide the proceeds, refinance debt to remove one spouse from a loan or credit card, or have alimony (also known as spousal maintenance) paid by the spouse who was the primary earner.  I’ve said that there are few things in life as final as Final Orders in a divorce.  But that’s not always the case.

These “final” decisions are based on many factors – how long a couple was married, what the financial resources are to both parties going forward, and what’s deemed fair in that particular state and courthouse.  These factors usually incorporate what has happened historically in the economy, which is assumed to be a foundation for what will happen in the future. 

In the midst of the worst recession since the Great Depression, some people are exploring reopening their financial settlement.  Maybe the house that was to be sold when the kids moved out is now underwater.  Maybe the credit card to be refinanced can’t be.  Maybe one of the former spouses has lost a job or has had earnings reduced. 

So when is it reasonable to restructure a divorce settlement from several years ago?  Ethical, intelligent people in the family law arena struggle with how to address this in the current environment.  Answers and outcomes vary widely.  There is a long list of considerations, but here are a few.

–         The first and biggest is whether or not the divorce decree allows for changes.  If alimony was part of the settlement and specified as non-modifiable, that is probably not worth pursuing. 

–         If the reasons you want to revisit your settlement are factors that impact your ex as well as you, think carefully about why your divorce would be worth modifying after the fact.  For instance, if your income is down, but your ex has also lost earnings, it might not make sense to revisit alimony.

–         If the factors that negatively impact you are outside the control of your spouse, a judge might not rule in your favor.  For instance, if the house was to be sold and proceeds divided, but more is owed on the house than it would sell for, forcing a sale won’t get either of you a great outcome.  But if the house could be sold for less than originally anticipated and you’d each get some money and you’d now be off the mortgage, that’s worth approaching your ex about.

–         If you want to make a change because you believe in your heart that your long term well being will always be the responsibility of your former spouse, think again.  This is true in any economy.  Unless you are disabled, it’s probably in the best interest of you, your ex, and your kids that you assume that you are responsible for making your financial future a good one.  When people tie their futures to each other through a marriage, they agree to weather storms together.  When they untie their futures through a divorce, they can each assume the autonomy to make their own choices and live with the consequences of their life decisions.  Looking to someone else to solve your problems is seldom healthy emotionally or financially.

Kids in Divorce Recession Style

In any divorce, the children are going to have changes in their lives.  Most parents want to minimize trauma for their kids and have them move forward with the same opportunities available to them when their parents were married.  Realistically, that’s not always possible, whether the economy is good or not. 

Sometimes a parent will intend to sacrifice everything financially for their children.  As noble as this sounds, it might actually do more harm than good to the kids.  If a mom or dad is not able to be financially self-sufficient later in life, the adult children will feel obligated to take care of that parent.   Since the kids probably weren’t old enough to make a life decision like that during the divorce, being saddled with that obligation later in life can be pretty unfair. 

So the best thing each parent can do for the kids is be an excellent role model for financial responsibility and self-sufficiency.  Don’t make financial commitments for activities, trips, and even higher education that you can’t afford.  Young people will learn about the value of moderation and being conscientious if they make some sacrifices during these difficult economic times.  They’ll see the benefits later, even if they don’t now.  It’s also okay to give your kids choices.  If your children are involved with choir, band, soccer, and tennis, but you can’t afford all those after the divorce, let them decide which activities they want.  Also, all of us parents do well to avoid buying affection or trying to assuage emotional trauma with money. 

Another good lesson for kids during the double hit of divorce and recession is that bad times don’t last forever.  The economy will recover.  And they will heal from the sadness of the divorce.  Keep lines of communication open with your kids.  You may also need to keep lines of communication with your ex-spouse open more frequently than you’d anticipated.  You’ll be co-parents for the rest of your lives.  And while the kids are spending lots of time in either of your households, you should endeavor to have some consistency between parents on your financial messages. 

It should go without saying, but don’t put your kids in the middle of disagreements with your ex.  Whether the economy is good or bad, that’s a given.

If you want more on the subject, go to www.brightleitz.com to order a copy of We Need to Talk – Kids & Money After Divorce.

Divorce – Recession Style: The House

Besides income and expenses, the house is another issue that sometimes has some aberrant circumstances in this recession.  During a “normal” economy, it’s pretty common for divorcing families either sell the home or one of them continues to live in it.  Seems pretty straightforward.  If neither of the spouses wants to stay in the house or can afford it, the house is sold.  Since the house is one of the biggest assets for the family, it can sometimes be tricky even in normal times. 

But these are not normal times.  Money stress seems to be bringing more people to seeking divorce as a solution.  And for many of these families, their house is “underwater”, meaning they owe more than the house will currently sell for.  Some people see their investment and retirement accounts worth less than they put in, but they don’t owe more than the account balance.  So the house is treated more like a liability in the financial settlement. 

I generally advise people going through divorce to make decisions they’ll be comfortable with going forward.  It’s often difficult to see past the terrible pain (and sometimes anger) that drives what someone in the midst of a divorce thinks they want to do.  So long term decisions are important. 

In that vein, it’s difficult sometimes to avoid what is sometimes referred to as the “recency effect”.   That’s acting as if everything will continue to be the way it has been recently.  Even the doom sayers don’t assume the recession will go on forever.  So it’s reasonable to expect that in the foreseeable future real estate markets will be better than they are now.  Sometimes the answer is a temporary one that allows both spouses to move forward and offers as little disruption as possible to the children.  One spouse stays in the house with the kids and pays the mortgage until the house has enough equity to make a sale at least a break even proposition. 

Sometimes the spouse that doesn’t take the house feels like it’s a raw deal because the house will be worth so much more in the future.  That’s true of any of the marital assets.  An investment account may go up – or down – in value and the one who takes it has to have the patience (and in the case of the house, the funds) to wait and hope for better days. 

In a worst case, the house might have to go into foreclosure or a short sale.  This is an environment where some people will end up with this terrible situation that wouldn’t under normal circumstances.  But that doesn’t mean it should be taken lightly.  That is a negative impact that will be reflected on the credit of anyone on the mortgage for several years.

Divorce – Recession Style: Income and Expenses

Divorce is never easy, but add on top of the emotional trauma, the uncertainly of a recession, it gets more difficult.  The next few postings here will deal with some financial issues in divorce and how they’re impacted by our current economic landscape.

If both spouses are able to make ends meet comfortably on what they individually make after a divorce, income doesn’t really come up as a bone of contention.  But if they can’t, then alimony – also called spousal maintenance – becomes an issue.  In divorce cases involving alimony, generally every state looks at the reasonable income of each spouse and their reasonable expenses to figure out what the amount of spousal maintenance might be.  The word reasonable – for both income and expenses – is key.  If I’d like to leave my financial planning firm and try to become an actress, a judge probably isn’t going to require my ex to pay alimony to make that possible.  Also, the courts don’t generally want me to live a substantially better lifestyle than my ex if we’ve been married quite a while.  (All this doesn’t take kids into account.  More on that in a future posting.)  And most people, after a divorce, have to cut back their lifestyles since most marriages don’t have enough excess cash flow to support an entirely separate household. 

So on the earnings side of the equation, in this economy, some people are taking a pay cut or losing their job.  And people entering the work force aren’t having an easy time of it.  Divorce isn’t intended to be a free ride or windfall to either spouse, but courts also don’t want people to have to stay married to survive.  People who aren’t going through divorce are making some temporary compromises in their career paths.  They’re taking a job to get their foot in the door at a company they’d like to work for long term.  Or they’re taking a job they’d otherwise never consider to put food on the table.  So people in the midst of divorce realistically may have to make some of the same choices.  That may lower how much one spouse will pay in alimony, but that certainly doesn’t eliminate the possibility of spousal maintenance being paid.  This may also be a time when people who wanted the security of knowing the amount of alimony was locked into their divorce decree may want the flexibility of having it subject to modification if circumstances substantially change. 

Unreasonable spending levels are one of the factors that caused the recession.  So this is a great time for everyone – in or out of divorce – to get back to sanity in their expenses.  But it should be an equitable approach to cutting back.  It’s not reasonable to have one spouse living in the penthouse with a view of the park while the other is living in a cardboard box in the park.

Using the Right Professional

Some divorces call for additional professionals beyond those I’ve previously listed.  You might need an appraiser if either spouse is involved in a private business, some collectibles, or another valuable asset.   An appraiser is often needed to value the family home.  You might need a vocational evaluator if one of the spouses hasn’t been in the work for a while.  And maybe there’s another special circumstance that calls for another professional. 

 

There’s a final point to remember with all professionals.  Use the right professional for each task.  Many people going through their divorce spending lots of time talking through the emotional issues of their divorce with everyone they’ve hired.  All these professionals should have compassion for your situation, but paying attorney prices to have some emotional venting isn’t a good use of your resources.  Neither is having an attorney or their legal staff to run financial reports.  All these professionals are a great help in their area of expertise – just use them accordingly. 

Working the Numbers in Divorce

The financial settlement is the major component of many divorces.  Making sure that a professional who is an expert in finances is also an expert in divorce is key.  A financial professional working on a divorce needs to be familiar with the legal landscape in divorce, tax issues that specifically relate to divorce, and the long term impact of the financial settlement in a divorce. 

Three different professions tend to gravitate toward this work. 

Investment professionals sometimes do this work as a loss leader to get investment clients after the divorce.  Be aware of this, both because of the potential for a lack of objectivity and because they might not have the training and credentials necessary to advise on divorce issues. 

Tax professionals also often enter the divorce process.  Many CPAs and Enrolled Agents have excellent grasp of the tax and legal considerations in divorce and provide a great compliment to the work the attorney does.  If tax professionals have a shortfall in divorce in general, it’s that they don’t always take the long view.  They are great at looking at the numbers now, but don’t always think in terms of the long term outcome for both spouses. 

Financial planners can also be great assistance in a divorce.  If the financial planner is a Certified Financial Planner she’s had training in looking at all aspects of a financial picture, including taxes and the long term perspective.  If this person has more a working knowledge of tax issues in divorce and understands knows the divorce arena, she could be a great addition to your divorce team. 
Getting help with the financial settlement between you and your soon-to-be ex is important.  You need to decide on alimony, dividing assets and debts, and calculate child support if you have kids.  Generally, courts aren’t amenable to re-opening divorce settlements because people didn’t make wise decisions.  Paying a financial professional to help you evaluate your settlement can one of the best investments you ever make.