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175383921In my last post “Getting Unmarried: Gray Divorces” I wrote about the increasing number of divorces for those over the age of fifty. Also of note was how Gray Divorces have many of the same foundational issues as any divorce although there are some distinct differences. Regardless of the issues, a trained financial neutral plays a critical role in the collaborative process. Money matters can be a bed rock of tension in divorce cases. Financial issues are often cited as a major reason for marriage breakups. A financial neutral assists couples in navigating their finances. They help with the two major financial components in divorce. One is the balance sheet (list of all assets and liabilities), and two the cash flow and support. So what does a financial neutral actually do you ask.  First and foremost a financial neutral is just that – an impartial expert on financial issues. They remain unattached to any particular outcome. A good financial neutral can be worth their weight in gold when it comes to helping couples navigate money issues in divorce. Financial neutrals help a couple gather and identify the financial information needed. I often hear from spouses the detail involved in gathering the financial information is something they have never experienced. The reason for this is all assets and liabilities, each and every one, is separately noted in the final decree so as to leave no doubt who gets what and who is responsible for what. Independent third party written documentation is needed to support each asset and liability. This information gathering is a part of the process that can’t be short circuited. Having said this, when information gathering is completed by a financial neutral it can save spouses a considerable sum. Think about it. You are paying one professional, the financial neutral, to complete this process vs. each spouse providing the same information to each of their attorneys who in a non-collaborative divorce will have to review and assimilate  all the information provided, ask questions of their clients, and then likely have to converse with the other spouse’s attorney. Financial neutrals can assimilate and organize this information in a streamlined manner with the couple’s cooperation. Usually financial neutral hourly rates are less and sometimes significantly less than attorney rates. Once all financial information is collected and organized the financial neutral creates a marital balance sheet listing each and every asset and liability. The marital balance sheet forms the basis for discussion as to how each asset and liability is allocated between spouses. In the collaborative divorce process, couples make their own decisions about asset and liability allocations to each spouse.  Couples must ultimately reach agreements on the balance sheet. The financial neutral along with each spouse’s attorney helps facilitate these discussions. The alternative in more traditional litigated divorce cases is someone else, a judge, makes decisions for the couple since they are not able to agree on their own. Financial neutrals help spouse’s asses their ability to meet their reasonable living expenses (cash flow). This part of the process includes analyzing income sources and estimating future living expenses. Generally spouses are asked to complete some sort of budget template. In my experience both as a financial neutral and a financial planner, I find most people do not care for the term budget. I do a fair amount of public speaking and when I ask people what they think of when they hear the word budget it usually has a negative impression like restrictive or confining. I have attempted to remove the word budget from my vocabulary as a result and replaced it with cash flow or spending guide.  Budgets tend to be backward looking while the words cash flow and spending guide are future oriented. Assessing income and expenses (cash flow) provides each spouse with a realistic look at their financial security moving forward. Financial security is the number one goal I hear that each spouse wants to achieve. No one has ever told me they want financial insecurity. A realistic look at cash flow for each spouse is critical to providing the financial security they seek. Here is a phrase I have used when having cash flow discussions. If your outgo is greater than your income, then your upkeep may be your downfall. Think about that for a moment. Better yet remember it, as it will serve you well no matter your financial stage in life. Yes the balance sheet with its listing of all assets and liabilities and the cash flow and support pieces form the two financial pillars of every divorce. Sometimes the financial issues can become very emotionally charged. A well-trained experienced collaborative financial professional along with the help of other collaborative team members can help keep spouses on track. I encourage couples to the extent possible to look at these decisions as business decisions. It’s easier said than done but in the end it usually is a business decision. I am a firm believer that each spouse and their family are far more important than any numbers on a balance sheet or cash flow report. In my book and in my work people always come first before numbers. There are other important financial issues a financial neutral can assist with. Watch for part II of “Getting Unmarried: Money and Divorce”. There I will talk about marital and non-marital property, analyzing tax implications of various scenarios for child support and/or spousal maintenance; analyzing property and business interests, debt pay off scenarios, and comparing pros and cons of using one asset over another. Is a collaborative divorce process right for you? If you or someone you know may be looking for a divorce alternative without court click on this link to learn more:  www.collaborativelaw.org.
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175383921In my last post “Getting Unmarried: Gray Divorces”  I wrote about the increasing number of divorces for those over the age of fifty. Also of note was how Gray Divorces have many of the same foundational issues as any divorce although there are some distinct differences. Regardless of the issues, a trained financial neutral plays a critical role in the collaborative process. Money matters can be a bed rock of tension in divorce cases.  Financial issues are often cited as a major reason for marriage breakups. A financial neutral assists couples in navigating their finances. They help with the two major financial components in divorce. One is the balance sheet (list of all assets and liabilities), and two the cash flow and support. So what does a financial neutral actually do you ask.  First and foremost a financial neutral is just that – an impartial expert on financial issues. They remain unattached to any particular outcome. A good financial neutral can be worth their weight in gold when it comes to helping couples navigate money issues in divorce. Financial neutrals help a couple gather and identify the financial information needed. I often hear from spouses the detail involved in gathering the financial information is something they have never experienced. The reason for this is all assets and liabilities, each and every one, is separately noted in the final decree so as to leave no doubt who gets what and who is responsible for what. Independent third party written documentation is needed to support each asset and liability. This information gathering is a part of the process that can’t be short circuited. Having said this, when information gathering is completed by a financial neutral it can save spouses a considerable sum. Think about it. You are paying one professional, the financial neutral, to complete this process vs. each spouse providing the same information to each of their attorneys who in a non-collaborative divorce will have to review and assimilate  all the information provided, ask questions of their clients, and then likely have to converse with the other spouse’s attorney. Financial neutrals can assimilate and organize this information in a streamlined manner with the couple’s cooperation. Usually financial neutral hourly rates are less and sometimes significantly less than attorney rates. Once all financial information is collected and organized the financial neutral creates a marital balance sheet listing each and every asset and liability. The marital balance sheet forms the basis for discussion as to how each asset and liability is allocated between spouses. In the collaborative divorce process, couples make their own decisions about asset and liability allocations to each spouse.   Couples must ultimately reach agreements on the balance sheet. The financial neutral along with each spouse’s attorney helps facilitate these discussions. The alternative in more traditional litigated divorce cases is someone else, a judge, makes decisions for the couple since they are not able to agree on their own. Financial neutrals help spouse’s asses their ability to meet their reasonable living expenses (cash flow). This part of the process includes analyzing income sources and estimating future living expenses. Generally spouses are asked to complete some sort of budget template. In my experience both as a financial neutral and a financial planner, I find most people do not care for the term budget. I do a fair amount of public speaking and when I ask people what they think of when they hear the word budget it usually has a negative impression like restrictive or confining. I have attempted to remove the word budget from my vocabulary as a result and replaced it with cash flow or spending guide.  Budgets tend to be backward looking while the words cash flow and spending guide are future oriented. Assessing income and expenses (cash flow) provides each spouse with a realistic look at their financial security moving forward. Financial security is the number one goal I hear that each spouse wants to achieve. No one has ever told me they want financial insecurity. A realistic look at cash flow for each spouse is critical to providing the financial security they seek. Here is a phrase I have used when having cash flow discussions. If your outgo is greater than your income, then your upkeep may be your downfall. Think about that for a moment. Better yet remember it, as it will serve you well no matter your financial stage in life. Yes the balance sheet with its listing of all assets and liabilities and the cash flow and support pieces form the two financial pillars of every divorce. Sometimes the financial issues can become very emotionally charged. A well-trained experienced collaborative financial professional along with the help of other collaborative team members can help keep spouses on track. I encourage couples to the extent possible to look at these decisions as business decisions. It’s easier said than done but in the end it usually is a business decision. I am a firm believer that each spouse and their family are far more important than any numbers on a balance sheet or cash flow report. In my book and in my work people always come first before numbers. There are other important financial issues a financial neutral can assist with. Watch for part II of “Getting Unmarried: Money and Divorce.” There I will talk about marital and non-marital property, analyzing tax implications of various scenarios for child support and/or spousal maintenance; analyzing property and business interests, debt pay off scenarios, and comparing pros and cons of using one asset over another. Is a collaborative divorce process right for you? If you or someone you know may be looking for a divorce alternative without court click on this link to learn more:  www.collaborativelaw.org
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112295220This article sprouted from a series of brainstorming meetings that I recently had with fellow Collaborative Attorney Bruce Peck. We decided to meet for coffee from time to time to discuss and share ideas for writing about any alternative topic that may come to mind that would be different from the usual topic of divorce. One reason people seek a divorce (in Minnesota, what we call Dissolution of Marriage) is because they start to think that they cannot trust their spouse financially. So they feel that unless they divorce their spouse, they will face a mountain of debt because of the careless way their spouse handles money. If you are feeling that way, you may be experiencing something like the following circumstances.  Do you view your spouse as untrustworthy with money? Is your spouse spending too much money?  Does your spouse gamble too much? Do you worry that your spouse will take on significant debt without your knowledge or consent? Does your spouse make terrible financial decisions? These financial concerns often lead to divorce because one spouse feels that the financial issues in their marriage are out of control and they cannot go on that way and have no other choice. One spouse feels that they can’t take on the financial risks involved in staying married and that divorce is the only option to save themselves from financial ruin. In these circumstances, divorce is not the only potential option you should consider. One alternative to divorce is a “legal separation”. In Minnesota, a legal separation may be granted by a court when the court determines that “one or both parties need a legal separation.” Arguably, avoiding financial ruin is a good reason to need a legal separation. This is because a “legal separation is a court determination of the rights and responsibilities of a husband and wife arising out of the marital relationship.” Further, a “decree of legal separation does not terminate the marital status of the parties.” In other words, a legal separation is everything a divorce is, without calling it a divorce and without actually divorcing the couple. People who have a legal separation in Minnesota are actually still married to each other. So, if you want to stay married, but determine all the rights and responsibilities of you and your spouse in a court order, just like in a divorce but without divorcing, then you might be interested in a legal separation instead of a divorce. In my experience, legal separations in Minnesota are quite rare. Usually, if a couple wants to separate their financial lives by determining their rights and responsibilities, they also want to be free to marry someone else if they decide to do that in the future. That rules out legal separation because if you are still married, you can’t get married to someone else. Even if a spouse has no intention of ever marrying again, they typically do not want to be married to their current spouse. With a legal separation, a person is still married and so they cannot marry someone else. I suspect that the only reason that there is such a thing as legal separation in Minnesota is that there have historically been people whose religious beliefs prevented them from even considering divorce. While many people still have an aversion to divorcing, I haven’t run across many people recently who still hold divorce as completely inconsistent with their religious views. The only two reasons that I can think of to get a legal separation are 1) you want to get a divorce, but your religious beliefs don’t allow you to divorce, or 2) you want to stay married as long as you can separate your financed from your spouse so that financial issues don’t come in between you and your spouse. There are some possible negative consequences and limitations of a legal separation. One is that your health insurance eligibility may be affected. Another may be the issue of how your change in marital status may affect your taxes. Another is that any joint accounts you have with your spouse are likely still at risk. There are additional issues to consider related to bankruptcy and debt collection. This is not meant to be an exhaustive treatment of all the positive and negative aspects of legal separation, but this gives you a sense for the potential issues to consider in making your decision. In order to choose legal separation over divorce, you should consult with a bankruptcy attorney, a family law attorney and a tax accountant and think through your options thoroughly before making a decision. The Collaborative process is ideal for helping couples talk through and make these decisions with the help of legal (and other professional) advice readily available to both spouses. An alternative to legal separation, without going through with a divorce, is to complete a postnuptial agreement.  This is like a prenuptial agreement (which is commonly referred to as a “prenup”), but a postnuptial agreement is signed after the couple is married (rather than before marriage). It is an agreement about the financial rights and responsibilities of the couple if they ever separate. This is a whole separate topic and is too large for this article. I’ll write more on the topic of postnuptial agreements in another blog post soon!
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MoneyI read an interesting article in the Star Tribune this week, “Till Debt Do Us Part,” about the challenges faced by newlyweds with student loan debt, particularly when one partner has more debt that the other. This got me thinking about the strong connection between money and divorce. Money issues are the number one reason clients give me for the failure of their relationships. Debt is usually a contributing factor. In my career as a collaborative divorce attorney, clients have shared their very personal stories with me. Sometimes the story-telling is tearful and filled with regret. Other times it is angry and filled with resentment. Tension over finances can evoke negative emotions and poison otherwise loving relationships. In some cases, money issues are caused by factors outside of anyone’s control, such as job loss, a tough economy, or illness. The resulting instability can be temporary or long-term and affects the entire family. In my experience, however, disagreements about money arise when parties come into marriage with different attitudes and feelings about money. These differences gradually reveal themselves over time, eventually affecting other aspects of the relationship. Even marriages of caring, committed spouses are at risk. So how can divorce over money be avoided? Awareness is the first step. Each of us grew up in a family with its unique money culture. Whether we realize it or not, our ideas and values have been influenced by our childhood experiences. Many parents are reluctant to talk openly with their children about money, leaving the children to unknowingly form their own set of beliefs. Failure to recognize these hidden internal attitudes and assumptions in ourselves and others leads to misunderstanding and blame. The good news is that open discussion of money matters can help couples identify their differences and protect their relationships.  Key questions include:
  • How will we manage our day-to-day finances?
  • How much should we be spending vs. saving?
  • Which budget items constitute “needs” vs. “wants”?
  • Will all of our money be considered joint or will we each have our separate funds?
  • How does each of us define “financial security”?
  • What are our retirement goals?
These same questions are critical to couples who have decided to divorce. In the collaborative divorce process, a team of collaborative professionals encourages the couple to look closely at their finances as they establish separate households.  Rather than make assumptions, both spouses are asked to describe their goals. The settlement discussions that follow help to produce a settlement plan that achieves as many of their goals as possible. To find out more about the collaborative divorce process, visit www.collaborativelaw.org.