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3 Steps to Prepare for Your Divorce

Divorce, in all its complexities and emotional upheavals, can be made simpler, easier and less acrimonious with preparation and organization. Here are three key steps to help you prepare for your divorce.

If it is really, really going to happen -- if you and your spouse just can't see yourselves continuing in this journey of marriage -- then it's time to get realistic about preparing for divorce.

I'm not suggesting that divorce is a simple solution to a very complex problem: you can't prepare for it as you might prepare for a move into a new house (though that is also a likely transition you'll need to manage). I am suggesting that divorce, in all its complexities and emotional upheavals, can be made simpler, easier and less acrimonious with the right amount of preparation and organization.

And so with that, let's start at the beginning and give you the three steps to prepare for your divorce.

 

Step 1: Take a Financial Assessment.

You've no doubt analyzed your feelings about this impending divorce over and over again. You've probably tried counseling or some sort of support mechanisms. (If you haven't we suggest that you try!) You've had gut-wrenching discussions and have assessed how you will feel about being separated from your spouse. Well, now it's time to do the same process about your finances. It's time to get realistic.

Gather all of your financial statements and organize them in one place. When I say "your", I mean those in your name, your spouse's name and joint names. Consider purchasing a multi-section portable file folder to help keep you organized as you work through this step. You'll need:

  • Mortgage Statement, including any Home Equity Loans and purchase information
  • Retirement Account Statement, as well as 401k's, pension plan statements
  • Credit Card Statements
  • Checkbook Registry for the last year
  • Any other long-term debt account statements you may have, including car loans
  • Bank account and investment account statements

Pull all of the paperwork together so that you can develop an overview of how your money was spent last year and what needs to be paid in the coming six to twelve months.

Then, get the highlighter out and highlight those expenses that you'll take with you upon divorce (e.g., if it's your car, then assume the car payments will go on your side of the ledger). Don't forget those pesky annual or "as required" bills -- like insurance and repairs.

Then add to that list new expenditures you know will be coming up in the next 24 months (e.g., braces for little Tommy or college tuition for Beth).

Pull it all together, take a breath and walk away for a few days. Over those few days, more things will come to mind. Write them down, then start tracking down the documentation for them.

 

Step 2: Align Yourself with Professionals

First, think about the divorce process you and your spouse will want to undertake. Ask yourself the following questions:

  • Is this going to be an acrimonious divorce? Or will my spouse and I cooperate?
  • Do I already know about all of our household and personal finances? Or do I suspect that I may be out of the loop on some assets, debts or income sources?
  • Do I trust my spouse to be cooperative and forthright?
  • Do I have any reason to believe that I will feel intimidated by my spouse during these proceedings?
  • Are we both focused on the wellbeing of our children?

If you believe that you and your spouse will cooperate and will have joint best interests in mind while negotiating, then you might want to choose a divorce mediator or embrace a collaborative divorce. Those options are less costly, more private and usually result in a more peaceful settlement process. However, if you're not certain about finances, or cannot trust your spouse to be completely above-board and cooperative, then you might hire a traditional divorce attorney, who will only have your interests in focus while they help negotiate the complexities of your divorce.

Legal help is only the first step. Generally speaking, attorneys are focused on the legalities of your divorce, and while many are well-versed in understanding your finances today, they are not experts in how today's finances translate into your future. Bringing a Certified Divorce Financial Analyst (CDFA) into the picture helps ensure that your financial settlement works for you both today and down the road, as your needs and life-stage change.

Finally, round out the professionals you involve in your divorce with a therapist who is experienced in the divorce process. You'll encounter new emotions, new fears, new adventures and a "new you" as your divorce unfolds. Having someone by your side to help guide the personal aspects of your divorce will help you to keep focus -- which in turn makes you better prepared for both the legal and financial sides of negotiation.

We have all heard the adage, "it takes a village to raise a child." Don't forget that it takes a team to guide you through this life-altering transition.

 

Step 3: Take Care of Your "Must-Do" List

There are some simple things you should do for yourself -- not for the divorce -- before the process begins. Before your divorce makes you entirely independent, take care of those nagging "must-dos" in your life that for one reason or another have been delayed.

  1. Take care of necessary medical and dental issues now -- before your health insurance may change -- not only for yourself, but also for your children, if any.
  2. Have a technician go through your car with a fine-toothed comb to identify any repairs that may be needed so that you are not caught off-guard with large expenses after your divorce.
  3. If you are keeping your house, do the same -- get an inspection, go through and make a list of necessary repairs, get an assessment on your furnace and AC and be sure to take a look at the roof and windows -- knowing what to expect goes a long way in preparing for your financial future.

Taking these three key steps will help to prepare you for the weeks and months ahead as you move through your divorce process.

 

 

 

When Women have to Pay Alimony

The tide has shifted in the workforce with women taking on more and more high-level career positions. Today, women are the top income earners in one-third of all marriages.

This shift has resulted in another tide change when these marriages end in divorce, as do an average of 50% of marriages.  A new and growing trend has emerged where women are paying alimony and/or child support to their ex-husbands.

More than half, 56 percent, of divorce lawyers across the United States have seen an increase in mothers paying child support in the last three years and 47 percent have noted a hike in the number of women paying alimony, according to the American Academy of Matrimonial Lawyers.

When one spouse makes more than the other, alimony is a means to equalize the lifestyle of each spouse upon dissolution of the marriage. Originally intended to protect the spouse who was not the career-driven force in the household (traditionally the female), alimony is now equalizing spouses when the woman is simply more successful than her husband.

What does this mean for women on a career rise? While planning for a divorce is counter-intuitive to nurturing a happy marriage, understanding what your rise in salary can mean in all situations, from taxes to retirement, is important for prudent financial planning. Planning should begin when first considering comingling assets.

For a couple where one or both have already acquired substantial assets, a pre-nuptual agreement can be a good tool to help avoid unpleasantness later down the road.  Consulting a financial advisor and an attorney before marriage can be helpful to understanding what is important to include in a pre-nuptual agreement, without making the agreement one that fuels your first serious disagreement.  Creating a professional balance sheet and financial inventory upfront also paves the way to appropriate discussions, making sure that both husband and wife know what assets and liabilities are in place at the start.

Establishing good communication about finances and money in your marriage is likely one of the best tools to avoiding difficulties about money now- and later.

Setting joint goals, and checking in with your financial advisor regularly to track your progress, is also a very good idea to maintain a healthy financial relationship.

So go ahead – take that promotion – climb that corporate ladder – but be sure to check back with your financial plan, and financial planner, about how to avoid risks in your future as a result of increased earnings.

 

Marriage is About Love; Divorce is about Moving on

If things are not going well in your relationship, and you think you might have to consider divorce, here are 7 important things to help you prepare.  Several of these are also great financial tools to use whether you separate or not.  Empower yourself to make more effective financial decisions.  Prepare yourself financially- and move forward.

  1.  If you are not the spouse who controls the money and pays the bills, get a good advisor to help you prepare.  Your ‘regular’ financial planner or investment advisor may not have the specialized training you will need to deal with a divorce.  Seek out a Certified Divorce Financial Analyst, who has received focussed training on these  issues, including  pre-, during, and post-divorce planning and implementation. 
  2.  Prepare a budget.  This is the first thing I recommend for my divorcing clients, and one of the first things your attorney will request if you begin divorce proceedings.  Know where your money is going; consider how much you and your children really need to live on now- and if you separate. 
  3. Consider where and how you would like to live, and prepare a Phase 2 budget for what that may look like when you live apart.  Child support is often determined by formula; focus on what might be required in maintenance/alimony if there is a large difference between your spouse’s and your own income.
  4.  Take care of necessary medical issues now, while you are still together and  your medical insurance is in place.  If the children need braces, or you have been putting off elective surgery, do it.  If you were planning to go back to school, especially if it will help you improve your job, or enable you to re-enter the workforce, don’t put it off! If you find yourself under new stress, as many people do, see a counselor for some help.  Divorce procedure usually requires that customary activities continue, so start now!
  5. If you are planning to stay in the home, get necessary repairs done.  Get the car fixed.  Get things in order, so that if you end up single again, you won’t have to worry about them.  And it’s easier to have these jobs done and paid for now, than to argue about who is responsible for them later.
  6. Change your passwords on your phone, email and online accounts, and open a post office box or make arrangements for a friend to receive important documents that you wish to keep private. 
  7. Credit: Get copies of all credit card statements, so you know what cards are out there and in whose name they are titled.  If you don’t have credit in your own name alone, this is the time to apply for a card.  Use it- and establish a credit record of your own.  If you want to keep the house, you may need to refinance it, and a credit history will be very helpful. 
  8. Get copies of all financial statements- bank accounts, credit cards, loans, mortgage, investments, retirement accounts, tax returns.  What are your assets?  Your liabilities? Don’t forget that both assetsand debts may be divided.  Know what you own and what you owe.  

Whether you were a Scout or not, Be Prepared is a great motto.  If you stay together, knowing about these issues can make you a better financial partner.  If you don’t stay together, this information may help you gain a more equitable settlement.

ADRIENNE ROTHSTEIN GRACE,CFP, CLTC, CDFA

Securities offered through Cadaret, Grant & Co. Inc. Member FINRA/SIPC. Davis Financial and Cadaret, Grant are separate entities. 

The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties.  Adrienne Rothstein Grace is not authorized to give tax or legal advice.  Individuals are encouraged to seek advice from their own tax or legal counsel.

 

Divorce Choices: Now there are 4!

Adrienne Rothstein Grace, CFP, CLTC, CDFA

May, 2012+ Comment now

 

Our society is constantly changing, and so is the face of divorce. There are now several options to choose from  in deciding how to proceed.  It’s very important to review these BEFORE hiring an attorney and moving forward with your separation and divorce.


In general terms, there are four broad categories of divorce alternatives to consider: Do-It-Yourself (DIY), Mediation, Collaborative and Litigation. Here’s some information about each one.

Do-It-Yourself Divorce

Do-It-Yourself Divorce? DON’T!!!

Divorce is very complicated, both legally and financially. You don’t know what you don’t know, so you can easily make mistakes and those mistakes can be irreversible and costly. The only time when a do-it-yourself divorce might work is a marriage that lasted only two or three years, with no children, little or no assets/debts to be divided, comparable incomes and no alimony. In a case like that, a Do-It-Yourself divorce might be done quickly and inexpensively. But I would still highly recommend that each party have their own separate attorney review the final documents.

Mediation

In divorce Mediation, a divorcing couple works with a neutral Mediator, who facilitates both parties to come to an agreement on all aspects of their divorce. The Mediator may be a lawyer, mental health professional or another trained individual, and (s)he must be extremely well-versed in divorce and family law. It is critical for the Mediator to be neutral and not advocate or advise either party. The Mediator will NOT make your decision for you! Both parties should consider consulting with their own individual attorneys during the Mediation for specific legal advice, and prior to signing the final divorce settlement agreement.

Here are a few things to consider before deciding if Mediation will work for you.

On the “pro” side, divorce mediation may:

• Result in an easier long-term relationship with your ex, since you address your issues yourselves, outside of the Court.

• Be easier on children, since the proceedings may be more cooperative.

• Expedite an agreement.

• Reduce expenses, often at least 50% less expensive than the traditional adversarial system.

• Allow for more discretion and flexibility to address personal circumstances.

. Mediation is private; litigated divorce is public.

However, on the “con” side, divorce mediation may also:

• Waste time and money. If negotiations fail, you’ll need to start all over.

• Be incomplete or unduly favorable to one spouse. If the mediator is inexperienced or biased towards your spouse, the outcome could be unfavorable for you.

• Fail to uncover certain assets. Since all financial information is voluntarily disclosed and there is no subpoena of records, your spouse could potentially hide assets/income.

•Reinforce unhealthy behavior patterns. If one spouse is dominating and the other is submissive, the final settlement may not be fair.

Mediation can be a less contentious, less expensive and more “dignified” way to get a divorce. Given parties who are reasonable and fairly amicable,  Mediation can be a viable option for many couples.  But choose your Mediator carefully.  Research their backgrounds and experience; feel free to consult with your Mediator before you retain him/her.

 

Collaborative Divorce

Collaborative Divorce is another process available, when a couple agrees to work out a divorce settlement without going to Court.

During a Collaborative Divorce, you and your spouse will each hire a different attorney who has been trained in the Collaborative process. The role of the attorneys in a Collaborative Divorce is quite different than in a traditional divorce. Each attorney advises and assists their client in negotiating a settlement agreement. You will meet with your attorney separately and then you and your attorney will also meet together with your spouse and his attorney for all settlement discussions/negotiations. The Collaborative process may also involve other neutral professionals, such as a divorce financial planner,who will help both of you work through financial issues and a coach or therapist, who can help guide you through child custody and other emotionally charged issues.

You, your spouse,your respective attorneys and any consultants brought into the Collaboration, must all sign an agreement that requires all participants to withdraw from the case if a settlement is not reached and/or if litigation is threatened.  If this happens, you must start all over again and find new attorneys. Neither party can use the same attorneys or consultants again!  This protects the confidentiality of the process, but underscores the need to be committed to reaching a fair settlement outside of Court.

Each spouse agrees to voluntarily disclose the details of their financial position, business assets, etc.  If there is a lack of trust, or doubt about the truthfulness of these disclosures, the Collaborative process may not be right for you.

As with Mediation, if the Collaborative Process is successful, you will usually not have to appear in Court; an attorney will submit the papers to enable a Judge to incorporate the agreement into the Judgement/Decree of Divorce. These processes, referred to as Alternative Dispute Resolution (ADR), can be much quicker and less expensive than traditional litigation.  Each spouse’s issues can be heard and acted upon, so there is the possibility of a more cooperative relationship moving forward, especially important for your children.

Do NOT use any of these first three options –Do-It-Yourself Divorce, Mediation or Collaborative Divorce — if:

  • You suspect your spouse is and will continue to hide assets/income.
  • Your spouse is domineering, and you have trouble speaking up or you’re afraid to voice your opinions.
  • There is a history or threat of domestic violence (physical and/or mental) towards you and/or your children.
  • You and/or your spouse has a drug/alcohol addiction.

Litigated Divorce

The fourth divorce option is the litigated divorce. Litigated does not mean the divorce necessarily ends up in a trial in Court. In fact, the vast majority of all divorce cases reach an out-of-Court settlement agreement.

Divorce does not always involve two people mutually agreeing to end their marriage. The decision to divorce can be unilateral  –one party wants the divorce and the other does not. Since New York became a no-fault state in 2010, the party who wants the divorce doesn’t even have to show ‘grounds’ (in prior years, for instance, that might be infidelity, or cruel and abusive treatment). This creates an adversarial situation right from the start and often disqualifies Mediation and Collaborative Divorce, since both rely on the full cooperation of both parties and the voluntary disclosure of all financial information.

The most important and most difficult parts of any divorce can be coming to an agreement on child custody, division of assets and liabilities,and alimony payments (how much and for how long). Although you want your attorney to be a highly skilled negotiator, you don’t want someone who is overly combative, ready to fight over anything and everything. This may not only prolong the pain and substantially increase your legal fees, it may also be emotionally harmful to everyone, especially the children.

Remember: Most divorce attorneys (or at least the ones I would recommend) will always strive to come to a reasonable settlement. But if they can’t come to a settlement or if the other party is completely unreasonable then, unfortunately, going to Court, or threatening to do so, might be the only way to resolve these issues.

If you have tried everything else, and you do end up in Court, things can get really nasty and hostile. Up until that point both attorneys were “negotiators,” trying to get the parties to compromise and come to a reasonable resolution. But once in Court, negotiations and compromise take a back seat to the new goal: to “win” and get the best possible outcome for their client.

And, once you’re in Court, remember that it’s a judge who usually knows very little about you and your family who will make the final decisions about your children, your property, your money and how you live your life. That’s a very big risk for both parties to take –and that’s also why the threat of going to Court is usually a good motivation to reach a settlement.

Here’s the last word of advice about divorce alternatives: Weigh divorce options carefully. Every family, and every divorce, is different. If you are able to work with your spouse to make decisions and both of you are honest and reasonable, then Mediation or the Collaborative method may be best. But, if you have doubts, a litigated divorce may be ‘Plan B’ and your way to move forward.

 

Surviving Financially After Divorce

Some ways to prepare yourself to deal with the financial realities of divorce – especially in this tough economy.

Often, the standard of living of both spouses drops in the first few years after divorce. Why? Because although the saying goes, “two can live as cheaply as one” , the income and assets that may have supported one household now has to support two separate households. Unfortunately, most people don’t prepare themselves financially or emotionally for that consequence. So what can you do to better prepare yourself for this inevitability? The answer is like so many things: simple, but not easy.

Here are five things you can do to help prepare yourself for your post-divorce financial future.

1. Expect your income to drop after the divorce is final.

You should expect your income to drop after the divorce is final. Develop a budget based on needs– not wants – and keep in mind that your expenses need to stay within your post-divorce income. Consider all sources of income: wages, investment income, child and spousal support (also called maintenance or alimony), keeping in mind the limited timeframe for support payments. To develop a budget, use a detailed worksheet so you don’t overlook any expenses. The best source for the expense information is your check register, if that’s how you pay your bills. Remember that not all your expenses are paid monthly; some insurance premiums or tax bills might be payable quarterly or annually, so make sure to account for those as well. To help get you started, you can use the “Monthly/Annual Expenses” worksheet; email me at: agrace@financialguide.comfor a copy.

2. Consider whether you can afford to keep the house.

Here are the traditional options for the matrimonial home:

1.     One spouse stays in the house (with the children, if any) and buys the other spouse’s share by:

o   Cash-out refinance

o   Giving up another asset

o   Property settlement note

2.     The spouses sell the house during or after the divorce process and split the proceeds.

In many cases, one spouse wants to keep the house. Though this might be emotionally satisfying, it often is not financially practical. The equity in the house is illiquid, meaning it won’t pay the bills.

In today’s housing market, sometimes the home can’t be sold in a reasonable amount of time – or for a reasonable amount of money. If the house can only be sold at a loss, divorcing couples have a few options, such as:

1.     Renting the house to a third party – or having one ex-spouse stay in the home and pay rent to the other until the market improves

2.     "Birdnesting”: the ex-spouses retain joint ownership of the home.  They also rent a small apartment nearby, and each one alternates living in the house with the kids and in the apartment on his/her own

3.     Agreeing to sell the home at a loss, share the loss, and move on with their lives

4.     Short-sale, foreclosure, or bankruptcy.

If one spouse wants – and can afford – to keep the house, that spouse should pre-qualify for a mortgage before the divorce is final. This is to avoid the unpleasant surprise that can come when one spouse is going to keep the house, but  may get turned down for a mortgage because (s)he doesn’t qualify to refinance in his/her name alone. To qualify for a mortgage, most conventional lenders use credit scores and reports and debt- to- income ratios.  Check your credit score, and talk to a mortgage broker to identify any issues before you make important decisions about the home.

3. Know what you have.

Account statements have a way of disappearing when divorce proceedings start. When contemplating divorce, start by collecting statements for all your financial holdings and put together a list of your assets. When negotiating your divorce settlement, this step will prove helpful as a starting point. Here’s an example of items you’ll need to list on an Asset Worksheet.

  • Cash and investments
  • Real Estate
  • Personal Property
  • Cash Value Life Insurance
  • Business Interests
  • Retirement accounts

As you work your way through the asset split negotiations, each asset can be moved to its appropriate column: “Husband” or “Wife”. To figure out the percentage split, divide the total for each spouse by the grand total.

4. Understand your financial needs.

It’s important to make sure that you factor cash flow into your calculations. Let’s suppose you want to keep the marital house – which is worth $250,000 or 40% of the marital estate – as your share of the settlement. Until you take a close look at your long-term financial forecast, you won’t know whether you can afford to keep it. Suppose, for example, you’ve factored child-support payments into your income; after the payments end, how are you going to pay the mortgage? If you have to put the house up for sale in a few years, you may be solely responsible for paying all the real-estate costs and capital-gains taxes from the time you and your spouse acquired the property until you sold it – which could be bad news indeed.

5. Hire a good team.

Personal recommendations from a trusted friend or business associate are a great source for professionals. However, you need to do your homework before hiring anyone. Your team should consist of a divorce lawyer and a Certified Divorce Financial Analyst (CDFA) at a minimum. Other members of the team could include a a therapist, a child specialist,  and a business or pension valuator, and perhaps a divorce advocate. Although you may think that the more professionals you hire the more costly your divorce will be, this is not necessarily true. In the long run, having the appropriate help will cut down on litigation costs, and it may save you from making costly blunders regarding your settlement.

 

(UN)LUCKY SEVEN COMMON MISTAKES MADE WITH THE FINANCES OF DIVORCE

  1. Assuming that a 50/50 division of property is a fair settlement.
  2. Keeping the house when you can't afford it.
  3. Failing to guarantee alimony and child support payments with life insurance on the life of the person who is suppose to pay.
  4. Not naming the spouse who receives alimony or child support as the owner of the life insurance policy, to help ensure that the life insurance is kept in force, unchanged.
  5. Looking at only the immediate short-term financial consequesnces of the divorce.
  6. Waiting until after the divorce to explore your health insurance options.
  7. Each spouse just "keeps their own" 401k plans.