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For Richer or Poorer? By Kathy Kristof
She is a certified divorce financial analyst. Couples hire her to help sort out the dollars and cents of their breakup. “My phone rings off the hook every Feb. 15,” Nelson says. “It’s not usually one thing. It’s a cumulative breaking point.” About 1 million U.S. marriages end in divorce each year, according to the National Center for Health Statistics. And while no seasonal statistics are compiled, divorce specialists say that mid-February is prime time for marital dissolution. “I think the holidays end up being the straw that breaks the camel’s back,” says Fadi Baradihi, president and chief executive of the Institute for Divorce Financial Analysts. “You spend a lot of time together, and any deficiencies in the relationship are highlighted on Valentine’s Day.” Linda Whildin, 55, says she started her divorce about this time three years ago, but it wasn’t over a small disappointment such as not getting candy and flowers. “It wasn’t so much Valentine’s Day as it was the beginning of the year,” she says. Whatever the reason, divorce triggers a host of important — and potentially irrevocable — economic decisions. To make matters worse, the emotionally charged nature of separation can make logical decisions difficult, causing many people to fall into costly traps.
Make a budget. The hard truth about divorce is that there’s unlikely to be enough money to keep both parties in the lifestyles to which they’ve become accustomed, says Nelson. “We cannot take the family income and support two households with the same efficiency as you supported one,” she says. “Lifestyles are going to change.” It’s important to get a quick and accurate view of what each spouse spends, what spending is necessary and what is discretionary so the couple can start making the tough choices that are likely to be necessary to keep both sides solvent, Nelson explains. Get a credit report and gather card statements. A common retaliatory move by the spouse who isn’t initiating the divorce is to splurge on credit, Baradihi says. “One spouse usually feels that’s a good form of revenge.” If the other spouse can show that the post-split spending was not “usual and customary,” a judge is likely to take that splurge out of the spender’s assets when divvying up the marital estate. Without a credit-card statement, it’s tough to prove what was normal. The credit report can provide a snapshot of the couple’s outstanding debt at the time the report was pulled, so it’s smart to order the reports as soon as possible after the split, Nelson advises. Tally assets, liabilities and earnings histories. Although divorce law varies from state to state, the presumption among most courts is that martial assets, liabilities and income will be split roughly in half, unless there are unusual circumstances to consider. What qualifies as unusual? Baradihi says that one of his clients was ill and unable to work. Her former spouse was a doctor with significant earning power. The client believed that she needed all the marital assets to maintain her lifestyle. The court agreed, giving her a lifetime interest in the estate. By the same token, Nelson says, she has experienced situations in which the husband claimed that his wife, who had been a stay-at-home mom, could earn $75,000 a year and shouldn’t be entitled to spousal support, even though his income was vastly greater than hers. A look at her Social Security earnings statement showed that she had never earned more than $19,000, making it simpler to dismiss his claim and secure spousal support. Avoid falling in love with an asset. The biggest mistake many people make is demanding an asset for emotional rather than economic reasons, says Mark Hill, managing partner of Pacific Divorce Management. “I know one couple who spent $15,000 to $20,000 in legal bills over who was going to get this painting that they’d purchased in Italy on their honeymoon,” he recalls. “By the time it was over, they could’ve both flown to Italy, each bought a new painting, had a nice vacation and still come out ahead.” Many women want the house without recognizing the sometimes burdensome demands of the mortgage, utilities, maintenance and taxes, Hill says. Men often go after the pension without realizing that every dollar coming out will be fully taxable at ordinary income-tax rates upon retirement, whereas a stock account or bank account would have a significantly lower tax. Don’t rush to hire lawyers. Although some couples need to hire attorneys, there are many other ways to handle a divorce, some of which are less costly and possibly less divisive, Hill says. Many parties represent themselves, for instance, agreeing on an equitable split of assets. For them, simply hiring lawyers by the hour to draw up the necessary paperwork may be best. There’s even computer software that can help with the support calculations. Mediation puts the parties (and sometimes their attorneys) in one room where everyone agrees to a settlement. Mediation typically costs a third less than a litigated divorce, and some lawyers say it also can result in more cordial child-sharing relationships. However, mediation isn’t always the answer, especially when the parties have vastly different power positions in the marriage. Mediators can explain divorce law but can’t give advice. If the parties don’t also have attorneys, mediators cannot help the weaker party from getting the raw end of the deal, Hill notes. Collaborative divorces involve a team of attorneys, psychologists and financial professionals who gather to come up with an equitable settlement, Hill says. ite the experts, a collaborative divorce may cost only half as much as a litigated one because there’s less bickering, he adds. When financial shenanigans, incidents of abuse or extreme disagreements are suspected, it might be wise for both sides to hire lawyers, even if it’s more costly, Hill acknowledges. “Consider what the issues are in your divorce. Are they child issues? Financial? Or, are they emotional?” © 2006 TRIBUNE MEDIA SERVICES INC. |
When the Valentine’s Day rush is over, A. Natalie Nelson’s rush starts.