11 Costly Financial Mistakes in Divorce Settlements

by |

 

Divorce is expensive even without mistakes. Read on to learn of the top eleven most common financial mistakes made in divorce.     

1. Mis-Specifying Marital vs. Separate Assets

What’s considered marital property and subject to division? Most will say that any comingling of assets (e.g., depositing the funds in a joint account or using marital funds to pay the mortgage) constitutes an asset as marital. And in some states and counties, even if a portion of an asset that was separate on the date of marriage will, over the years, transition to marital. This can impact considerations of real estate, retirement, inheritances, and more.

2. Dividing Each Asset 50/50

Too often, lawyers, hearing officers, and judges take the easy way out by forcing division of each asset equally. Why? It’s easy and not easily challenged. This approach, though, fails to consider the needs and wants of each spouse, as well as the tax consequences of and administrative effort in dividing each asset.

3. Not Considering an Alimony Buyout

No one likes alimony. Payors hate writing the check and the recipient hates depending on it. Plus, if the payor dies or is disabled, the payments stop (an example of why insurance is important post-divorce). Instead, if there are sufficient assets to cover it, calculate the present value of the stream of anticipated payments at an appropriate discount rate and build it into the division of assets.

4. Errors in Valuing Executive Compensation

If there’s one financial topic that befuddles many, it’s how to treat deferred compensation, including stock options, both qualified and not qualified, as well as restricted stock and restricted stock units. Are they marital or separate? Are they based on past or future performance? Can they be transferred to a spouse/former spouse? What is the correct valuation method: intrinsic value, Black-Scholes, or the binomial method? How are taxes accounted for?

5. Not Considering the Possibility of Hidden Assets

Given the opportunity and motive, many a spouse will start stashing away funds in anticipation of a divorce, whether for financial security, sense of ownership, or vindication. Tax returns, W-2’s, credit card statements, and bank account statements are all sources to identify diverted funds. Even when not suspected by a client spouse, a quick review of these documents may reveal otherwise unidentified assets.

6. Not Looking at Creative Settlement Options to Meet Each Spouse’s Unique Needs

What if a spouse wants to keep the house for and can’t get approval for a mortgage buyout? It’s easy to just say “sell” and move on, but there are ways to facilitate the desire of a spouse who wants to remain in the home for a period without undue legal or financial burden to the co-owner spouse. As another example, maybe retirement funds are of utmost concern and alimony/cash flow not so much? A skilled divorce financial expert will come up with alternative settlement options to address the unique needs of each spouse.

7. Mistakes in Retirement/Pension Valuation and Division Orders

Retirement plans, and especially pensions, are widely misunderstood in divorce. The one who’s name is on the retirement plan thinks they are the rightful owners. Some incorrectly think the “current value” on a pension statement is the value of the pension. Pensions of all kinds, and especially military and federal pensions, require an expert for valuation and drafting of appropriate orders for submission to the custodian.

8. Failing to Consider Tax Consequences

All assets are not alike when it comes to splitting them in divorce. $250,000 in a 401k is not the same as $250,000 of equity in a house. The former is taxed at an ordinary income tax rate upon withdrawal while the latter may be largely excluded from any taxation and otherwise taxed at the capital gains rate.

9. Allowing One Spouse to Keep the House When it’s Not Financially Feasible or Beneficial

The marital home is an asset laden with emotion and sentimentality. It’s common to want to keep the house for emotional stability without consideration of the impact on future financial health. Houses don’t necessarily appreciate significantly over time, maintenance expenses are often overlooked or discounted, and a house is not a liquid asset. An objective evaluation is critical before deciding to keep or sell the marital home.

10. Not Properly Accounting for a Closely Held Business

If a spouse owns a business, is it a source of income, an asset to be valued and divided, or both? If a source of income, do we just look at the tax returns for the business? If to be valued, do you pay a business valuation expert thousands of dollars to get an accurate figure? Get the advice of a divorce financial expert is necessary if one of the spouses owns a business.

11. Not Accurately Budgeting for Your Post-Divorce Life

Do you have a good hold on where your money goes? Have you really assessed how much you will need post-divorce? Your choice in divorce settlement options needs to be balanced between short-term cash flow needs and long-term net worth.

Work with a qualified divorce financial professional, i.e., a Certified Divorce Financial Analyst® (CDFA®) to help you avoid costly mistakes in divorce. You only get one chance to get it right.

Take Control of Your Future

When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Berni Stevens, a Mediator and Certified Divorce Financial Analyst® (CDFA®.)

Berni provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, Berni will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.

Schedule Your Complimentary Divorce Strategy Session Today!

How Much Does Divorce Mediation Cost?

by |

What is the Price of Peace?

Every divorce has a price tag—filing fees, divorce attorney or mediator fees, and other court-related expenses total up quicker than you might think. So, what is the price to pay for peace? The answer to this question largely depends on how you go about getting divorced.

What can you do to keep divorce costs down? TruNorth Divorce Solutions sheds some insight into the true cost of divorce and provides some pointers to help you avoid breaking the bank.

1. Why does divorce cost so much?

Divorce is never one-size-fits-all—no two are the same. But while the nitty gritty details vary by situation, there are a few common factors that draw out the process and drive costs up.

Contested divorces are usually rooted with irreconcilable conflicts and tough emotions, and this really complicates the divorce process. Generally, these types of divorces go to court to be settled because resolving things amicably through cooperative efforts is next to impossible.

What does this have to do with the cost of your divorce? Time spent is the answer. The divorce process is essentially a negotiation and when an agreement can’t be easily reached, the time of divorce attorneys, the court and its officials, other family law professionals is enlisted to help arrive at a divorce settlement agreement. 

2. Filing costs

The cost to formally file for divorce through the court varies by state. In the state of Maryland, for example, the average cost to file with the court is $185 (if you hire an attorney; $165 if you are representing yourself—although this is not generally advised if you have joint assets). There are other costs associated with serving your ex with an official decree of divorce.

Things can snowball quickly in a contested divorce because it’s hard to reach an agreement. Court appearances, responding to motions, filing paperwork, and the cost of the time of the professionals involved during the process all add a divorce’s overall price tag. 

3. Legal representation

One of the biggest expenses in any divorce are attorney fees—hourly rates for family law attorneys can be pricey. According to Bankrate, the average cost of a US divorce is around $15,000. Divorce lawyers generally bill for your initial consultation and then establish an hourly rate going forward.

It’s important to familiarize yourself with the services your lawyer provides, and it’s also a good idea to have them disclose billing practices up front so that there aren’t any surprises down the road. Never go in blind. 

Pro-tip: Picking up legwork by getting paperwork and relevant account statements together can help you save on billable hours. Being organizationally savvy and providing an accurate and clear picture of your finances can end up saving you a good chunk of change.

Divorce Mediation Cost - all of the costs involved

4. Divorce mediation cost instead of court

It’s not uncommon for separating couples seeking an uncontested divorce to enter private mediation instead of going through the court system—but how much does divorce mediation cost? According to Thumbtack, divorce mediation costs can range anywhere from $100 and $1000 an hour in the US and an overall cost anywhere between $3,500 and $7,500 (some mediators charge more for services than others and cost varies widely by state). Some professional mediators have an established fixed fee for their services.

Professional mediators who have financial and legal backgrounds can help speed up the divorce process and save you money. But remember, the best option isn’t always the most affordable option. Do some research and make sure you end up with a good fit. 

Mediation may be an easier path to divorce, but is choosing to work with divorce mediator right for you? Choosing to work with a divorce mediator can save you a load of time, stress, and money. A professional divorce mediator possesses the expertise of a lawyer and may also bring a financial services background to the table.  

While divorce is an expense, there is no reason to break the bank. Remember, with a little financial savviness and education, you can offset some of the cost. Want to explore whether divorce mediation is a good fit for you? Contact TruNorth Divorce Solutions for a free consultation.

Style of Divorce Mediation

by |

Couples that decide to use mediation for their divorce process often don’t realize that there are three distinctly different styles of mediation. They vary greatly and the style your mediator is trained in will significantly impact the experience you are signing up for. It can be very confusing for the client and you need to make sure you are educated before you evaluate mediators. The three primary styles of mediation are facilitative, evaluative and transformative. There is also a hybrid style that combines aspects of each.

Facilitative Mediation

This is the earliest style of mediation introduced in the 1960’s and 1970’s. The mediator typically creates an atmosphere that encourages each party to have a voice in the process and the mediator asks appropriate questions to elicit the underlying fears, concerns, and interests. The mediator does not typically make recommendations to the couple and encourages them to come to their own agreements on the various issues. Generally, all sessions are held jointly but there may be short meetings with each person individually, as well.

When facilitative mediation began, it was not necessary for the mediator to have extensive knowledge or experience in the area being mediated so many are not experts in any aspect of divorce. That can still be the case today, but more and more there are attorneys, financial experts, and other divorce practitioners who are embracing the practice as well.

Evaluative Mediation

This style was born out of the court system and modeled after the settlement conferences held by judges. The mediator (or mediation team) is trained in one or more specific aspect of divorce, e.g., the law, financial matters, or custody, and will provide expert advice. This style of mediation is often practiced by attorneys using separate meetings with parties and then moving back and forth from one party to another. A true evaluative mediator makes recommendations to each party and directly influences the outcome. 

Transformative Mediation

A newer concept in mediation, transformative mediation was introduced in 1994. It is based on “empowerment” of each of the parties and “recognition” by each of the parties of the other parties’ needs, interests, values and points of view. The values are very similar to facilitative mediation. The foundation of transformative mediation is self-determination, the couple’s ability to structure their own solutions and process. The mediator then follows their lead. 

Hybrid Mediation

In divorce, most couples want to avoid litigation and an attorney-driven process that can cost tens of thousands of dollars and result in decisions that aren’t the couple’s own. They do, though, want some expert guidance before negotiating the particulars of their Marital Settlement Agreement and Parenting Plan. A combination of aspects from each style of mediation—facilitative, evaluative, and transformative—can produce a divorce that works best for you, your spouse, and children. Learn more about the TruNorth Mediation process here. 

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com