Tips on Minimizing the Financial Impact of Divorce
by Roberta Stanley
Whether professionals are involved in a divorce themselves or advising their clients, there is one financial principle to remember: Fighting is not free. Litigation is expensive, particularly if you want sound advice from an experienced attorney. Therefore, the most advantageous way to minimize the financial impact of divorce is to resolve the substantial issues as quickly as possible.
In the last few years, the Florida Legislature addressed the issue of child custody by eliminating the designation of primary and secondary parent and reframed the issue by requiring parenting plans that set forth “time-sharing” arrangements. This change has helped reduce conflicts in cases dealing with children issues. In most divorce cases, however, major disputes revolve around money.
The first stage in moving toward a settlement is reviewing the finances of each spouse. Both parties are required to prepare a financial affidavit which reflects the parties’ incomes, expenses, assets and liabilities. It is particularly helpful if the couple has a financial advisor, whom both trust, to provide a summary of the parties’ current financial condition. When both parties are income-earning professionals whose assets are primarily banking and investment accounts, it is easier to obtain an overall picture of the marital estate.
But that is not always the case. In some marriages, the mother’s role has been to stay home and raise the children (occasionally, the father will take on that role). When either spouse has little knowledge of the parties’ finances, believes the other is hiding assets, or if it is difficult to separate business and personal assets or expenses, a more in-depth analysis is needed. In that case, the earning spouse, or the spouse with the information, should put together a package of financial information that provides support for the information on the parties’ financial affidavits so that both attorneys possess the necessary documents to verify the parties’ incomes, assets and liabilities early in the process.
Appraisals of real and personal property should be agreed upon and exchanged. Fighting over financial disclosure is really counterproductive since the documents will have to be produced eventually. An amicable exchange of financial information is always cost effective. Providing financial documents and values of the parties’ assets and liabilities will help to minimize the fees payable to attorneys, accountants and other professionals during the discovery stage.
When the assets include cash, a spouse who finds that the home safe or bank safe deposit box has been emptied may have a hard time proving the amount of cash the other spouse removed. A spouse who has no role in managing the parties’ cash is at a distinct disadvantage.
Once financial disclosure is completed, the next stage in the divorce process is to attend mediation, where approximately 95 percent of my cases are settled. Costs associated with mediation typically include the services of a certified mediator and a lawyer and CPA for each party. Therefore, both sides can minimize expenses by analyzing the financial information in advance and having a clear understanding of the value of the assets and liabilities, as well as the income of both parties.
If one of the spouses has been handling all of the finances for years, the other spouse may need time to get up to speed on financial issues prior to mediation. A financial planner or accountant may be able to provide advice on what level of income is needed and what options are best regarding division of the marital assets. For instance, it may make sense to sell the family home and use a portion of the proceeds to downsize. That may provide more flexibility than staying put and being “house poor.”
The professionals need to examine the unique factors in each case and prepare possible distributions of the assets and liabilities using both parties’ best and worst case scenarios. It is very important to review the settlement options carefully with the client so that at the time of mediation the client has a realistic picture of what the settlement means.
When dealing with spouses who have not been employed outside of the home for many years, it may or may not be realistic for that spouse to re-enter the job market after an extended absence. The cost of skills training or education must be considered in the overall settlement. This type of planning for the future can be helpful in improving the spouse’s financial outlook and reducing the fear of impoverishment. This is important because such fears, if left unaddressed, can drive protracted litigation and stand in the way of reaching settlement at mediation.
Another option with the potential to reduce costs is a collaborative approach to divorce. In my experience, two equally skilled attorneys who are committed to helping the clients resolve their issues outside the courtroom can make this work. However, if the collaboration is not successful, the clients may wind up spending thousands of dollars, only to have to restart the process with two different attorneys.
Finally, it is not uncommon for two spouses who have vigorously negotiated the overall structure of a financial settlement to become angry over cherished personal possessions. I tell my clients not to let their emotions upset the total resolution of the case. Remember that fighting is not free. Instead, get appraisals of the jewelry, paintings or antiques. Consider dividing the items among the children. In most cases, the costs of mediation or litigation over a vase or sculpture will far outweigh the benefits of retaining ownership.
So, even if your heart is broken, use your head. Understand your current situation, consider your options, and make prudent financial decisions that make sense for the long term.
Roberta G. Stanley is a shareholder at the law firm of Brinkley Morgan in Fort Lauderdale and Delray Beach. She is Board Certified in marital and family law and a fellow of the American Academy of Matrimonial Lawyers.
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