Fortunately, I do not have intimate knowledge of divorce proceedings (I’ve been married thirty-five years…I think!) but I recently heard a presentation by an attorney who specialized in divorce law and she confirmed a number of observations I’ve had over thirty-something years of practicing as a financial advisor and she opened my eyes to several important developments.
- Divorce is expensive. Ok…so this is no secret but even in cases where there are relatively few assets to quibble over, you can easily spend thousands, if not tens of thousands of dollars. This attorney suggested that you should expect a divorce proceeding to last twelve months or more and spend between $20,000 and $40,000. Where the couple has substantial assets, expect to spend a lot more time and money. I was involved peripherally on a case twenty years ago where the ultimate settlement for the wife was about $3 million. Guess what her lawyer charged her? $325,000!
- Divorce happens a lot. According to this attorney, 50% of first marriages end in divorce; 60% of second marriages; and 70% of third marriages end in divorce. So, “If at first you don’t succeed, try, try again…,” doesn’t seem to be a great mantra when it comes to marriage!
- Divorce mediation is a viable option IF…. In divorce mediation, as a couple you agree to come together and have a lawyer negotiate the various issues of financial support, property division, and custody of children issues. This is typically done in half-day or day long sessions and can take several days. I’ve seen cases where there is a single lawyer doing the mediation and cases where both parties have their own attorney with a mediation attorney going back-and-forth in the negotiations. Ultimately, both parties must have separate legal representation for the final divorce decree. This should be a much less expensive option than the typical process of having two lawyers square off against each other. I had a case a number of years ago where clients decided to divorce and we recommended mediation. This was a million dollar-plus estate and it was successfully mediated for under $5,000. The reason for success was that they both came to the table with a sense of respect for each other and approached the process with dignity and what would be a fair settlement for each other. In many cases, one or both of the couple is so angry, mediation is not an option. I’ve had two relatively recent cases of young couples where very few assets were involved and I strongly recommended mediation. “If you choose to fight each other”, I said, “You’ll spend $50,000 to $100,000 and the attorney’s will end up with all your money.” They chose to fight and the legal fees for one case was approximately $80,000 and $40,000 for the other. Some couples are just not mentally ready for mediation.
- Retirement money. Money held in retirement plans in Alabama is not subject to division until the couple has been married for ten years. After ten years it can be divided (and often is) under what’s called a qualified domestic relations order (QRDO).
- Inheritance and gifts. If you receive an inheritance (or gift), that money is generally not subject to division in divorce unless it is “comingled”. Be very careful here as comingling can occur without you realizing it. The attorney used two examples. If you use the money to pay for common bills such as utilities, it could be considered comingled. A one-time extraordinary expense such as “the roof blew off…” would not count as comingled. We advise clients to maintain the funds in a separate account and not use any of the principal or income for common expenses or purposes.
- Business interests. If you own a business, it’s important to note that the business is subject to a division though this can be challenging at the very least. If you’re the one running the business, you’ll, in most cases, want to split assets so the non-active spouse receives assets other than an interest in the business. I remember a high profile case of thirteen years ago where the wife received half interest in the husband’s business and to this day she continues to wreak havoc on him and the business. Sometimes the anger of a failed marriage never dies.
- Trusts. If you have a trust that is revocable, it can be included in a divorce settlement. If it’s an irrevocable trust and you retain any “powers” over that trust, the opposing attorney may be able to breach that trust and get a division of its assets.
Next week, I’ll discuss trends in divorce courts and the pros and cons of both pre and post-nuptial agreements.