The Art of Divorce – Part II

Last week we began a discussion about the cost of divorce; what type of assets are subject to division; and the use of mediation versus the traditional divorce process where both sides choose an attorney and square off and fight it out… often resulting in higher attorney fees and significant emotional stress.  The rules for divorce in Alabama fall under ‘equitable distribution’ versus ‘community property’, meaning the judge attempts to divide property based on subjective factors instead of a 50-50 split.

Divorce attorney, Jessica Kirk Drennan, recently spoke on the trends in divorce settlement.  She indicated that judges today are much more likely to order joint custody of children resulting in more limited child support.  Alimony trends have also changed where judges look to alimony as a financial bridge allowing a non-career spouse time and resources to re-train for entering the workforce.

Most divorce cases are settled prior to going to court but when a case does go to court, we’d like to think we will get a fair hearing and cases with similar facts would receive consistent outcomes.  Unfortunately, what is ‘equitable’ is seen through the eyes of each individual judge and the results vary enough so as to be fairly unpredictable.  In other words, who gets what assets can vary widely depending on which judge hears your case.
Prenuptial and Postnuptial Agreements

You can significantly eliminate this ‘guessing game’ with a prenuptial agreement which is almost universally recommended in cases of second marriages, particularly where one or both spouses have substantial assets.  A prenuptial agreement lays out, ahead of time, how assets will be divided if the marriage fails and can save a lot of time and money if that event occurs.  Mrs. Drennan made a strong case for executing a prenuptial agreement even in cases of first marriages where there are few assets starting out.  She warned that couples signing a prenuptial agreement should be careful not to run afoul of the ‘common law’ marriage rules which could void a prenuptial agreement.

While postnuptial agreements are more rare, Mrs. Drennan feels they are worthy of consideration.  In many cases, a couple decides to have one spouse give up his or her career to be a homemaker.  In a later divorce, the non-career spouse often appears to have a disadvantage when it comes to division of property and income settlement.  A postnuptial agreement can spell out an equitable solution and a good time to do this is at the time the couple makes the decision for one spouse to quit work.

These are awkward conversations but as Mrs. Drennan says, “People should contemplate things in life that are unpleasant…death, divorce.”  With divorce hovering around 50% in first marriages, this seems like wise advice.
Collaborative Divorce- An Alternative Strategy

On January 1, 2014, the Alabama legislature passed the Uniform Collaborative Law Act (UCLA) which lays out a process for alternative dispute resolution in divorce.  The key components of UCLA include:

  • The parties sign a collaborative participation agreement which outlines the scope and nature of the matters involved.  They further agree to negotiate in good faith.
  • As part of the good faith agreement, the parties voluntarily disclose all relevant information.  There are no depositions or legal demands for information.
  • Each spouse must retain their own attorney.  Typically these attorneys have specialized training in the collaborative divorce process.
  • Other professionals are often involved including mental health professionals as well as professional financial advisors.  This may seem unusual but most divorces carry tremendous emotional baggage and mental health professionals are skilled at helping people work through the emotional issues.  Financial advisors are skilled at developing a plan for dividing assets that is both fair and tax efficient.
  • All professionals, including the attorney’s agree that if the collaboration process is unsuccessful and proceeds to a contested divorce, their services will terminate and they will not represent the parties in the ongoing divorce proceedings.

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For most couples, divorce is a traumatizing experience.  A client of mine recently asked and answered this question… “What’s the best strategy for accumulating money for retirement?  One house; one spouse!”  I couldn’t have said it better myself.