Divorce — Planning Ahead or Just Reacting?

health-care costsToday we welcome Guest Poster Jared Diamond. He’s not from New Mexico, so please understand he’s writing generally; he’s also not a lawyer. But the points he makes are good to consider. I have some additional thoughts that I’ll add next week.

Divorce: A Reactive or Proactive Animal?

Divorce and poverty often go together like Laurel and Hardy, but some forward-thinking financial planning can help you avoid that pitfall. Most people are well aware of the short-term and obvious financial consequences of divorce, but there are some long-term and hidden consequences as well.

Some attorneys give reactive advice – “if X happens, react by doing Y” – and that works very well in many situations: divorce can be so overwhelming that many attorneys do not want to overburden their clients with excess information. Others, such as Austin based divorce attorney Jim Evans have more success with a proactive approach – “proactively do Y to prevent X from occurring in the first place.”  For attorneys in the proactive school, financial planning for the future starts while the divorce is still ongoing.

Conserving resources

Because mediation is a good option to reduce direct and short-term legal expenses, many attorneys recommend mediation based on the short-term benefits alone. Proactive mediation also has long-term cost benefits: by increasing satisfaction with the outcome, mediation increases compliance and decreases future legal expenses on motions to enforce and other procedures. Because mediation has other benefits, such as decreased conflict and decreased stress, you are more productive and get more done at work and at home, and you take fewer sick days to deal with the emotional stresses and strains of divorce.

Mediation is not always successful, but it is nearly always at least worth a try.

Planning ahead

The reactive school says to get the best deal possible upfront, and deal with any longer-term financial difficulties if and when they arise. Part of the issue may be that some attorneys are not really interested in a long-term relationship with their clients, so there is a tendency to say “look at the favorable divorce property settlement I obtained for you; call someone else if something goes wrong later.”

Even the most basic financial planner knows that what is good today may not be good tomorrow and, in fact, sometimes it may be worth sacrificing a little bit today in order to have a better tomorrow. NPV (No Present Value) assets in a divorce are a prime example: home equity, stock options and retirement accounts to name a few. But these NPV assets are not magic beans that may be worthless; these NPV assets are very valuable in the future.

Home equity is a gold mine once the house is sold, or if the homeowner elects to take out a reverse mortgage later. Stock options may mature into very lucrative assets that can jump start a retirement or a child’s college education. And your share of a retirement account can help give you the financial security you deserve.

While the reactive school may be best in some situations (why bother formulating solutions to problems that may never be an issue?), a proactive divorce attorney is the best advocate for your family, both now and ten years from now.

Jared Diamond writes on a host of personal finance topics. Jared is a graduate of the Ohio State University with a B.A. in Economics and is an active blogger on a number of publications.

Options After Divorce For Couples Who Divorced With Debts

health-care costsThis post is Part Two in a two-part series by Brooke McDonald on how a divorcing couple, and a couple who has divorced but still has debt problems, can benefit from a bankruptcy.  Part one examined consideration of getting a bankruptcy before the divorce. This post examines consideration of mutual bankruptcies after the divorce.


In my last post, I examined how a pre-divorce bankruptcy can benefit couples in debt – but what about couples who have already divorced?

 

A story will serve our purposes and better illustrate the problem – and possible solution – at hand.

Cindy and John have been married for four years. They are planning to get a divorce. During their marriage, the couple did not pay off several large purchases made with credit cards, and Cindy incurred student loan debt while earning her MBA. During the pre-divorce negotiations, the couple works with a mediator to divide their assets. Through the Marital Settlement Agreement, the majority of the credit card debt is decided to be John’s responsibility and the remaining credit card debt and student loan debt is Cindy’s.

Soon after their divorce, Cindy begins to pay back her grad school debt. She is adjusting to living on her single salary and finds it challenging to pay back the debt. John stumbles into hard times after his divorce. He takes a pay cut at work and encounters some health difficulties. These factors make paying back his debt nearly impossible, so he gets behind on his payments.

John’s bank, waiting for payments it never receives, then pursues Cindy and sues her for the debt. Continue reading

Bankruptcy Pre-Divorce Can Benefit Couples In Debt

debt-definition-300x199 This post is part one in a two-part series by Brooke McDonald on how even a divorcing couple, or a couple who has divorced, may find bankruptcy a helpful tool in setting up fresh, new lives.

Divorce is never easy. The process of untangling two lives requires slicing through and divvying up all shared assets. Divorce negotiations can be exhausting, emotion-filled times. Adding stressful financial matters to the mix can further complicate the process. Divorce during times of financial success is concerned with dividing assets. But during hard economic periods, it may be more common to be assigning debts or assets with negative equity, such as property. If a couple has unpaid debt, this often raises the stress level of pre-divorce negotiations. Conflict over unpaid debts preceding divorce negotiation can lend an impending atmosphere of instability, fear, and suspicion to the divorce negotiation environment. Continue reading