In the United States, approximately 50 percent of marriages end in divorce, and money conflicts are cited as a high-ranking cause.1 Accordingly, it’s worth spending a few moments reviewing proactive strategies that can help with the legal, financial and emotional ramifications of divorce. The following tips can help.
Tip #1 – Learn about the different ways you can get divorced. Contrary to what TV dramas and movies might have you believe, lawyers aren’t always in court, and they don’t have a penchant for drilling people on the witness stand. While only about 5 percent of divorces go to court, each attorney has his or her own style and generally practices in a certain way. That’s why it’s important for you to have an idea of how you might want to get divorced before you choose an attorney. There are four basic ways to achieve a legal divorce:
- Kitchen table negotiations – This is where you and your soon-to-be ex-spouse sit down and hammer out who gets what possessions, as well as custody, visitation and other issues. You each visit your own attorney and one of them draws up an agreement. You both sign and file. While this is generally the lowest-cost option, it generally only works for the most amicable couples.
- Mediation – This approach is similar to kitchen table negotiations but includes a third-party mediator whose job it is to help navigate the conversation and ensure it remains productive. The mediator does not give legal or financial advice. Once you reach an agreement, one of your attorneys draws up an agreement that you both sign.
- Collaborative divorce – With this type of divorce, you and your spouse each hire a collaboratively trained attorney and the four of you meet to negotiate together. The process also includes third-party professionals such as financial specialists, mental health professionals and child specialists who support you during the divorce process. When you choose this approach, you agree to full disclosure. If you aren’t able to reach an agreement, you’ll need to start over with new attorneys. This is a new approach to divorce that emphasizes supporting the family so everyone involved can get through the process as unscathed as possible.
- Litigation – This approach most closely resembles a TV divorce. You each hire an attorney who speaks and negotiates on your behalf.
One thing is for sure, the more you and your spouse can communicate and negotiate together, the less costly the divorce and the more options you’ll have for how you can get divorced. Having an idea of where you fall on this spectrum will make it easier when you’re choosing attorneys.
#2 – Have an accurate and complete budget and net worth statement for your first meeting. Arriving to your first meeting with a full overview financial picture helps the attorney determine if you are a good fit and which of the divorce approaches makes the most financial sense for you. Also, it’s important to understand that a big part of the divorce is based on finances, and the agreements you make are determined by two things:
- How much money is coming in and going out of the household
- What you own and what you owe
This is the foundation of how negotiations begin, so if you can have a handle on your finances before your first meeting, you’ll have a head start and can be immediately productive when working with your attorney. If you arrive at the appointment without this information, your attorney will hand you a blank form to complete.
Key tip – Consider hiring a Certified Divorce Financial Analyst® (CDFA®) professional who can help you gather your financial information, verify it and transcribe it correctly. A CDFA® practitioner will charge up to half the hourly rate of an attorney and the product will be complete and verified by a financial expert. Otherwise, your attorney will not verify your financials. That is not their job. They will, however, charge you their hourly rate to gather the documentation through the legal process of discovery and review the documents. Save yourself the trouble and the money by just doing it upfront.
Another issue to consider is spousal support. In many divorce proceedings, the budget and net worth statement numbers determine spousal support. If this applies to you, it’s extra important to get this right. Oftentimes, attorneys will argue that the receiver of support has forecast excessive costs while the payor has underestimated them. A CDFA® professional can help you use exact numbers. Having an accurate budget at the beginning of the process will also allow your attorney to immediately start helping you determine who will pay what while the divorce is happening. Although your life is on pause, your bills are not. Having an idea of how the bills should be paid before seeing your attorney will give you peace of mind that you will not fall behind on your financial obligations. In addition, having a pre-divorce budget and net worth statement sets you up for success during the negotiation process because your financial professional can continuously update these documents to illustrate the effects of a proposed settlement agreement. Specifically, he/she can illustrate whether or not you will have a cash flow deficit at the end of each month. In other words, if you take this deal, will you be able to pay your bills? The financial professional can also show you a net worth projection based on the proposed asset split. This is important, as you don’t want to end up with all the slow-growth assets while your spouse walks away with the high-growth assets (a.k.a., cash vs. stocks).
#3 – Create a support system. Divorce consistently tops every list of the most stressful events of a person’s life. Even a great network of supportive friends and family can’t take the place of an objective mental health professional. A therapist can help you effectively process your emotions so any decisions you make can be as clear-headed as possible. When a couple splits, there are really three divorces:
- The legal divorce
- The financial divorce
- The emotional divorce
Find an expert in each of these categories and you’ll be setting yourself up for a split that doesn’t make you wonder, “What was I thinking?” years after the settlement agreement is signed. Need help navigating the financial aspects of your divorce?
Creative Planning is here for you. Our dedicated team specializes in working with divorced clients and includes an attorney, a CPA and a CERTIFIED FINANCIAL PLANNER™ practitioner. These experienced professionals work with clients to navigate the financial ramification of divorce and develop personalized financial plans to help them achieve success in the next chapter of their lives. If you’d like help navigating your financial life before, during or following a divorce, please schedule a call.