Financial Survival of a Divorce: The 9 Most Costly Mistakes to Avoid
By William Donaldson, CFP® following their divorce. E
Too often, a divorcing individual unknowingly accepts an unfair settlement and finds that a few years later he or she is experienc- ing serious financial challenges. This outcome can be significantly improved upon, if not altogether avoided, if the individual first un- derstands the most critical divorce financial issues before he or she signs an agreement.
Following is a summary of the first three of nine common mis- takes I often see.
Mistake #1: Choosing the Wrong Process Once an individual decides to initiate the divorce process, the next, and most important decision is how to do it. Following is a brief description of several options:
The first and most basic divorce process is referred to as pro se,
which is a Latin term for self-representation. In this process, you do not hire lawyers or other divorce professionals to assist you. You and your spouse simply roll up your sleeves, sit down at the kitchen table and work out your agreement. When there are simple financial is- sues and no children, this can be a very cost effective method.
If you need a minimum amount of professional guidance, you should explore mediation – a process in which a trained divorce mediator helps you facilitate your negotiations. The mediator is not an advocate for either of you. He or she will answer questions and provide information that will assist you in determining the best solutions for your particular situation. Think of it as the kitchen table exercise described above, but with a professional sitting with you to help you through the challenging issues.
Similar to mediation, Collaborative Divorce is a way of divorc- ing without getting the court involved other than to approve the final agreement. This process also requires that you and your spouse work together to negotiate an agreement that considers the needs of the entire family. The main difference is that you each hire an attorney to represent your individual interests and to give you legal advice along the way. Collaborative lawyers are specially trained in this process and have learned to throw down their battle axes and work together with their colleagues and clients to negotiate an agreement without going to court. Their focus is on reaching an agreement and settling your case. No time is spent on court filings and trial preparation – saving you from both added stress and spending a lot of money!
If working together with your spouse is simply too difficult, the last resort is litigation. Beware, however, that this is usually the most costly, stressful and contentious divorce process. Legal battles can
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Mistake #3: Not Understanding the Liquidity of Your Assets Liquidity refers to the ability to access the cash value of an as-
set. For example, a bank savings account is highly liquid, because you can simply withdraw funds from an ATM when you need them. A home, however, is nearly illiquid.
In many cases, the two biggest assets in a marriage are the home and retirement accounts. These are not like assets and if it is suggested that they be traded equally just because they have a simi- lar value please beware. You need to be sure there is sufficient cash flow from other sources because tapping a home for emergency cash can be difficult if not impossible, and it’s certainly not a quick process!
Bill Donaldson is an investment advisor representative with Conscious Capital Wealth Management, LLC (CCWM) and has over 17 years of experience as a financial consultant. CCWM employs a holistic model that aligns one’s unique financial goals with their dreams, visions and overall well-being. A successful life is one of balance. We recognize that money alone does not create peace of mind.
Investment advisory services offered through Conscious Capital Wealth Management, LLC, a Registered Investment Advisor located at 381 Hubbard St., Glastonbury, CT 06033. Contact us at 860-659- 8299 or on the Web at
www.consciouscapitalwm.com. See ad on page 41.
ach year there are nearly 1 million divorces in the United States, or about 50% of all marriages. The real tragedy, how- ever, is the financial hardship that occurs to many individuals
drag out for years, children often suffer significant emotional stress, and your assets can be severely drained by the time you reach an agreement. It is certainly possible to find two very good lawyers who have your best interests in mind and settle the case without all of the fallout as described above. But even with the best of inten- tions going into a litigated divorce, the process is designed to be adversarial and couples rarely emerge from it with good feelings toward each other.
Mistake #2: Letting Emotions Drive Your Decisions This is easier said than done, as a divorce is one of the most emotional experiences you will ever have. I’m sure you’ve heard stories about a divorce where thousands of dollars were spent fight- ing over an item worth hundreds or even less. Getting a mental health professional involved, which is common in Collaborative Divorce and mediation, can nip emotional issues in the bud before they become an expensive battle. Unfortunately these emotional issues are often fueled by the adversarial nature of litigation. Don’t let this happen to you and be sure that if you are feeling upset over a specific issue consult with a licensed, reputable therapist.
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