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Three Critical Financial Steps in Getting Through Your Divorce

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Divorce can make it really hard to think straight about what to do next when it comes to most things and especially financial planning. Believe me, I know. The intelligent, together person you are can turn into an emotional, brain-fogged, unorganized mess. You try really, really hard to keep it together but you know this will not go down as “the best of times.” You want to sit down and get it together and plan your future but feel paralyzed and surrounded by a pea-soup cloud of indecision. What’s a person to do to ensure they’re doing the right things to financially plan for your divorce?

Well first, let’s get real.

ADMIT WHAT YOU DON’T KNOW

When it comes to the finances, what’s your role? Do you handle the family’s finances and investments? Are you on top of your investment accounts, retirement plans, bank accounts, etc.? If you’re in the dark, you need someone to help you turn the lights on and fast!  Gather all your financial statements on your asset accounts and your most recent tax returns, then find a specialized divorce financial advisor to help you out and bring you up to speed.  A CDFA is specially trained in the financial aspects of divorce and will be your best friend in this process. If you and your spouse are able to cooperate, you can use a CDFA-Mediator who will educate you and your spouse on the realities of your financial health and what your future might look like under various settlement options.

START ENVISIONING YOUR FUTURE

Maybe you’ve already been fantasizing about your future life or perhaps this has all taken you by surprise. Regardless, it’s time to start really thinking about what the next phase of your life looks like. Unfortunately, this has to happen at the same time that you are grieving what you thought the next phase might look like. But if you allow yourself some space, it can actually be very productive. You now have the chance to start from scratch. What did you used to dream of doing that got lost while you were married? Is it time to go back to school? Maybe live on a sailboat for awhile or move closer to family? Whatever you dream of, you have to have your budget and financial picture top of mind. So the step above has to come first so your dreams don’t outsize your wallet! A financial advisor specializing in divorce would know how to set you up for future success.

BUILD A SINGLE IDENTITY

Often through marriage many of the credit cards, mortgages, loans, etc. are in the names of both spouses. All of those accounts will have to be closed or converted. After the marriage is over, your credit picture may not be nearly as strong, so you want to be sure to put some things in place while you’re still married. Immediately open a checking and savings account in your own name to begin the process of establishing your own financial identity. Get a credit report and start monitoring it. Track your expenses and create a budget for now and post-divorce. Find a good rewards credit card to apply for in your name alone so that you will be assured of having access to credit through the divorce and beyond.  

These steps seem small but are valuable first steps to get you thinking financially and looking out for your future. You can get through this with a little help from an experienced divorce financial advisor. Having the right professionals on your side will be of great benefit to you.

 

 

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An Overview of Divorce in Maryland

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Most “How to Get Divorced” articles take a rather narrow view, i.e., the legal process. Obviously, these articles are typically written by lawyers. 😉 

How to get divorced can be a multi-faceted, complicated, entangled, frustrating, non-linear, jumble of a messy process. Not surprising, given that there are two spouses, years of history, hot emotions, finances, children, a home, secrets and lies, and hidden agendas involved.

Given all this, though, let me try to keep this “how to get divorced in Maryland” piece as simple as possible for this medium (please contact us for more detail.) Here are what we consider to be three essential components.

#1: Financially Prepare and Protect Yourself Before You Start the Divorce

  • Open a separate checking and credit card account at a new bank
  • Check your credit report and score and then periodically track
  • Establish private communication, e.g., P.O. box, email account
  • Gather and copy financial and legal documents—tax returns, statements for loans, bank and retirement accounts, investments, wills, trusts, deeds, car registrations, insurance policies—and store them outside of the marital home

#2: Talk to Professionals

Most think to first call a lawyer after they talk to a few of their friends and family members. Let me suggest otherwise. Friends and Cousin Amy are great for support but they aren’t likely stellar for advice on how to handle one of the most important and costly events of your life. While well-intentioned, their cases and knowledge of others’ situations are different than yours and you will need the advice of a professional for accurate advice.

You’re best first stop is not with a lawyer but with a far more neutral and resourceful individual: a reputable divorce coach. She or he can help you assess your situation and choose the best path forward and how to execute. They can also help you with setting objectives for how you want to handle the divorce on a personal level, i.e., how to be your “best self.” They can help you better work with a lawyer or mediator, saving you money and significant angst. They are more than anything, the quarterback on your divorce team who can help you assemble the right individuals for the jobs you’ll need to get done.

Lawyers, of course, are a critical component for their knowledge of the legal process. They will often unnecessarily steer you, though, to costly litigation, without regard for what will be best for you and your spouse. Many lawyers are now moving into mediation as its become more popular with divorcing couples, but keep in mind that lawyers aren’t necessarily the best choice for mediation. They are also not equipped to handle the emotional, practical, or complex financial issues of divorce, so make sure you talk to more than just a lawyer early on in the divorce process.

Mediators are a good information source as you consider mediation as a divorce process. Other professionals to consider are a Certified Divorce Financial Analyst® (CDFA®) to discuss optimal or creative financial settlement options, or a therapist who may be able to provide extended emotional support.

# 3: Familiarize Yourself with MD Divorce Law and County Procedures

a. Legal Separation

In Maryland, there is no legal separation and as of fall 2023 there is no “limited divorce” which was, essentially, a legal separation. Even without legal recognition of a separation you can still create a legally binding separation agreement that covers such things as child support, spousal support, joint bills, parenting plan, health insurance, loans and other debts, etc.

b. Residency

If the ground for divorce occurred in Maryland, you need only be currently living in Maryland at the time you file for divorce. If the grounds for divorce occurred outside Maryland, you or your spouse must have lived in Maryland for at least six months before filing your divorce complaint.

c. Types of Divorce, Waiting Periods, and Filings

In Maryland, most divorces are no-fault divorces and you can get a divorce without a waiting period if your divorce is mutually consented. A no-fault divorce may also be based on a one year separation.

Additionally, there are at fault divorces which may be treated differently when it comes to awarding alimony and sometimes custody if the fault ground negatively affects the children. At-fault grounds include adultery, actual desertion, and constructive desertion (typically this is cruelty). At-fault divorces will not be granted if the plaintiff is also determined to be at-fault.

Divorce filings are handled by county court. Filing can take place where either of the spouses resides. Each county has its own procedures and fees and should be researched prior to filing.

d. Support, Settlement and Custody Agreements

It’s important to note that if you have financial and custody issues to work out before the divorce is finalized you must do so before the waiting period is over or the decisions will be deferred to the court. The court will look to the filing spouse for their preferences.

If you both hire attorneys and litigate in the courts, you will likely spend a minimum of $30,000 – $40,000. Mediation can reduce fees to less than $10,000. Courts will appoint legal representation for those in need or you can negotiate the financial and custody terms yourselves.

So, that, in a nutshell is “How to Get a Divorce in Maryland.” It’s a bit more nuanced than this as, stated earlier, divorce can be a multi-faceted, complicated, entangled, frustrating, non-linear, jumble of a messy process. For more information on Maryland divorce from a legal perpective, you can go here.

Call or request a consultation if you want more info. 

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Top Three Divorce Settlement Agreement Mistakes

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When it comes to divorce, there are many areas where we feel vulnerable. When it comes to the divorce settlement agreement or property agreement, we rely on the advice and judgment of our trusted advisors. What would you rather hear: “everything will be okay, don’t worry,” or “things will be okay but you’re going to have some tough choices to make?” I feel strongly that there are too few divorce professionals who truly tell it like it is. They either tell you what you want to hear so you’ll continue paying their outrageous hourly fees or they simply don’t know any better. Either way, they’ll lead you to some stupid, easily avoidable mistakes.

Here are a few things that I see repeatedly after settlements are agreed to and the judge has signed off on the divorce. Remember, unlike alimony and child support, property settlement agreements are final—you don’t get to go back again to re-do them!

These divorce settlement mistakes can be very costly and easily avoided by using the right professionals to support you in your divorce.

Mistake #3: The settlement doesn’t consider taxes—at all!

 We all know that Uncle Sam will dive into our pockets at every opportunity. When it comes to divorce settlement agreements, not all assets are alike and tax implications do make a difference! What people often find is that the tax burden on their half of the marital assets is significantly higher than their spouse’s, making their “half” of the assets worth significantly less than they thought. Don’t expect your attorney to know this! Attorneys are not trained as accountants or divorce financial analysts and a lot of them don’t bother to warn you of that. Buyer beware.

Mistake #2: Pension is split “50/50”

Over and over I see divorce decrees that order pensions split 50/50 but no one has any idea what will happen when payout begins or what that means under various circumstances. When do you start collecting? Is there an option to take a lump sum? Will there be a cost of living increase each year? What if you or your spouse dies? Will it keep paying? Will it double? When I ask these questions, no one has ANY IDEA what the answers are. These are questions that should be asked during the valuation of the pension and preparation of the divorce settlement agreement. How can you possibly agree to a settlement without understanding something so crucial to your retirement? Again, do not expect attorneys or non-CDFA® mediators to be of much help here.

Mistake #1: Marital home is kept by one spouse who is unable to afford it

 One of the most common divorce settlement mistakes I see time and time again is one spouse keeping the marital house they really can’t afford. I understand how one can get emotionally tied to the family home and want to stay. Before really considering this option, though, you must do a realistic budget that takes into account upkeep, property taxes, improvements, homeowner’s insurance, replacing the water heater, fixing the roof after the tree falls, etc. I have witnessed where one or two years down the road the spouse who “won the house” has run out of cash and realized that they can’t sell a window to put food on the table, they can’t refinance because now they don’t have enough income to do so, and they have no choice but to sell. The selling costs are about 7% and there’ll be capital gains taxes after the sale – all of which would have been split 50/50 with the ex if they had sold the house as part of the divorce. Ugh, that was not the smartest decision, right?

These are but a few of the financial divorce settlement mistakes that are avoidable but too often made in divorce settlement agreements. Truthfully, you can’t be expected to know all the ins and outs, nor should a lawyer. Just realize you don’t know what you don’t know and that lawyers are in generally the same boat. You can hire a CDFA® on an hourly basis to supplement your lawyer or mediator’s proposed settlements or use a CDFA-Mediator who can advise you and your spouse on both the short and long-term implications of the decisions you are making. Either way, just make sure you’re fully informed before you sign the papers!

 

 

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Six Elements of a Successful Divorce Mediation

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As a process to divorce, mediation has grown in popularity for several reasons. It’s significantly less costly than other assisted alternatives, it empowers couples to control their own destiny and make decisions that best serve them and their children (as opposed to relinquishing the control to attorneys, court masters, and judges), and it creates less emotional damage for all involved. On the other hand, it may not be the best solution when one of the parties is not able or willing to fully engage in the process. A properly-qualified mediator can work with a hesitant party to improve the chances for success. Nonetheless, you should consider six critical elements to a successful mediation.

Here Are Six Critical Elements For An Effective Divorce Mediation:

1. Readiness:

It is often the case that one spouse is way ahead of the other in calling it quits. If both spouses aren’t ready to dissolve the marriage, discuss the distribution of assets, or deal with custody issues then the process is crippled before it even gets started. To effectively mediate, both must be ready to move forward and not use mediation sessions to attempt to derail the divorce. Readiness also includes having emotions in check. Divorce is, indeed, a major life event that makes for strong emotions but these must be largely dealt with outside of divorce mediation sessions. 

If you are the reluctant spouse or know that you’re feeling too emotional to productively engage in divorce mediation, consider utilizing a divorce coach to help you address your concerns and issues until you feel ready. Beware, though, that If you stall the process for longer than your spouse can tolerate, he or she may hire an attorney and begin the litigation process—this may result in far greater expense and emotional damage.

2. Openness to Options:

A good mediator will educate the couple about alternatives to settlement options regarding asset division, support, and custody issues. She is an expert in divorce and is trained to address the pertinent issues. It’s good if you and your spouse have already had discussions around the key issues, but even better if you both enter the mediation process with an open mind about creative alternatives that might improve your situation.

3. Full Disclosure:

Your mediator can only incorporate the information you share with her. Key information includes what you envision as your needs and wants for your future apart as well as all income, assets and liabilities. Creative solutions to divorce settlements are born from an in-depth understanding of needs and concerns, also the available resources. If a mediator senses there are trust issues, she’ll terminate the divorce mediation process and suggest you consider litigation, instead.

4. The Right Mediator:

Not all divorce mediators are alike! Many family law attorneys have turned to mediation as a way to boost their incomes in a competitive marketplace but they aren’t really committed to a non-adversarial approach. If you consider a mediator attorney, you need to ask them if they exclusively mediate or whether they also litigate—you want someone who is committed to a less adversarial practice and not just looking for a way to boost revenues. Also, you want someone with expert training in the divorce issues that are most important to the both of you. Lawyers are experts in the law but not necessarily in divorce finances and custody. If your primary issues are financial, then consider a divorce financial expert, i.e., a mediation trained Certified Divorce Financial Analyst (CDFA®). Even better, a CDFA® who is also a CDC Certified Divorce Coach® who can help you make decisions that are consistent with your values and tackle some of the emotional issues getting in the way of a settlement that will serve both of you well into the future. If there are custody issues as well, a CDFA® mediator can incorporate a parenting specialist into the divorce mediation process or, if necessary, assist you in a collaborative divorce that incorporates parenting, financial, and emotional specialists in addition to attorneys for both sides (but beware, collaborative divorce can get quite expensive relative to mediation).

5. Sufficient Time:

Don’t let anyone rush you into an agreement you’re not ready for. Yes, in litigation there’s a clock running, but not in mediation! Take time to consider your options and make a decision that you won’t regret in the future! 

6. Attorney Review of Your Settlement:

Once you are satisfied with the agreements you’ve made with one another and have a draft of a Settlement Agreement, you should pay an attorney a few hundred dollars to ensure your Agreement is sound and can’t be legally challenged in the future. Once processed, it’s difficult and costly to challenge your Agreement, so make sure it’s thoroughly reviewed before you sign anything.

Starting the Divorce Mediation Process

Mediation is a great process for divorce and one you won’t regret if you make sure you’re ready and ensure you have the right mindset, fully disclose your finances and what’s important to you, allow yourself the time needed to make decisions you won’t later regret, have chosen an ideal mediator, and do a legal review before you finalize your Settlement.

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How is Alimony Determined in Maryland?

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Alimony is but one financial aspect of divorce and there are many for which you should have a qualified divorce financial professional review.

Alimony is a generic term that actually refers to two types of support payments made by the higher earning spouse to the lesser earning spouse:

  • Alimony Pendente Lite – Support after the divorce complaint is filed and before the divorce is final
  • Alimony – Payments mad once the divorce is finalized for a set period of time per the divorce settlement

Alimony in Maryland must be awarded before the divorce decree is issued. Alimony awards are almost always rehabilitative, i.e., temporary. On rare occasions, e.g., when a spouse is disabled or too old to enter the workforce, an alimony award may be indefinite. Courts look at many factors when determining if alimony should be granted, especially the ability of the lesser-earning spouse to be wholly or partly self-supporting and how long it will take for him or her to get the necessary education or training to be self-supporting. Standard of living, length of marriage, and a number of other items may also be considered.  The People’s Law Library of Maryland has a “quiz” to help you determine the likelihood of an alimony award in your specific divorce. Access it here: Maryland PPL Alimony Quiz.

There is no formula for alimony in the state of Maryland and alimony awards are not dependent on whether child support will be paid. However, the American Academy of Matrimonial Lawyers (AAML) has developed guidelines and a calculator for states that do not have their own.

Alimony Buyouts

The vast majority of men and women view alimony with disdain—who wants to have to write a check to their ex-spouse month after month? Likewise, does anyone like waiting for and worrying about the monthly check they’re expecting from their ex? What happens if the payor dies, loses their job, or becomes disabled? Is he or she going to be obsessing about whether their ex is cohabitating with a new partner? One alternative is to add an offset to the distribution of the assets equal to the present value of the expected alimony payments. So long as there are sufficient assets to cover the amount, this is a win-win for both parties and eliminates the ongoing angst of monthly payments.

Read more on divorce financial considerations here.

 

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