October 12, 2009 by wendy.

The recession has changed the face of divorce.  Divorcing couples have a lot less money to spend, and the dividing the assets and debt has become even more important than ever.  Couples are often angry and emotional when going through divorce, and all too frequently, one or both parties’ initial reaction is to “get an attorney and go to court.”  In some cases, hiring an attorney is necessary and the smart thing to do.  There are some pitfalls, however.  Attorneys often help clients settle out of court, but the cost is high – both emotionally and financially.  And using attorneys to settle a case is often a matter of positional bargaining – one wherein more “stuff” for one person means less for the other party.  Litigation is even more expensive and emotionally draining. 

One way to potentially save money on divorce is through mediation – if both parties truly want to try to settle.  Mediation is usually “interest-based,” in that the mediator helps the parties to satisfy their interests and concerns in the divorce, rather than just dividing the pie.  So – not only can mediation be a more-cost effective solution, the outcome can be creative and include any number of issues that are important to the divorcing couple, but not necessarily to an attorney.  Moreover, the parties are more likely to adhere to the settlement if they have a role in creating their settlement.

These days, any settlement agreement (called a Memorandum of Understanding by many mediators) should be very thorough.  The rocky economic times in which we live dictates that a good agreement should contain any number of “what-if?” clauses.  What if the house doesn’t sell?  What if one of us loses our job?  What if one of us gets sick and can’t make the payments as agreed?  What if the spouse getting the house cannot refinance?  These and other questions that are germane to each couple’s situation should be included in a settlement agreement these days. 

In mediation circles, there is an expression, “If you litigate, you lose.”  Although a dramatic expression, there is some truth to this.  With mediation, couples maintain control of the process, expenses, and potentially, the outcome.  With litigation, couples put much of their control in the hands of attorneys, the expenses can increase dramatically, and the outcome is often a crapshoot in the courts.  Even if the couple does not go to court, and the attorneys are very involved in settling the divorce – and all too often their focus is strictly on dividing the marital assets.  They may or may help to resolve other, often personal, interests that are important to one or both of the parties.  Additionally, attorneys may or may not be aware of the taxes and the long-term impacts of the settlement on one or both parties. 

Be aware that just because you may be going to mediation for your divorce, you can still consult an attorney.  An attorney will be able to provide good, legal advice, especially for more complex cases.  At a minimum, an attorney can review your Memorandum of Understanding to make sure your legal interests are covered.  Moreover, if the mediation is not successful (and not all are have positive results), you always have the option of stopping the process and going to attorneys.

Mediation is a potential solution if both parties truly want to settle their divorce without attorneys and litigation.  It can achieve a win-win outcome, address the couples’ interests and concerns, and result in a more positive adherence to the settlement, all at a possible lowered costs.  It is not necessarily the right approach for each couple and each situation – but it is important that both parties know and understand their option.

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October 8, 2009 by wendy.

Although all economies go through cycles, our current economic situation is unusual.  In this particular situation, we had the “perfect storm” economically speaking.  People were in over their heads in credit card debt, their houses had second and even third mortgages, interest rates on debt were increasing, and the value of their homes was shrinking.  Add to this mix the unemployment rate rising, and business incomes dropping and the economy slid into a nasty recession.

Regardless of the economic situation, people will still get divorced.  How do people handle their debt situation, a house that is worth less than their mortgage, and a possibly lower income situation?  In addition to these money woes, what if they are also faced with a possible bankruptcy?

Bankruptcy and divorce become a dicey area.  Which should come first - the divorce or the bankruptcy? 

Let’s say that the divorce is final and your ex-spouse declares bankruptcy.  Even if the under the terms of the settlement agreement your ex is supposed to pay for certain debts, if he or she declares bankruptcy and your name is still on the debt, the creditors can still come after you. You could get stuck with the debt. You may be able to go after your ex in court, but only after the damage is done.  And – you may be able to get very little relief if he or she has very little income or property.  In this case you should consult an attorney. However, in addition to having the creditors hound you, your credit score could be adversely affected, resulting in higher interest rates, an inability to possibly refinance your house, or even to get credit.  To add insult to injury, if you have taken cash as a property settlement in lieu of other assets (such as a 40lK), you may be required to use the cash to pay the creditors.  You, too, may be forced to declare bankruptcy.

Before 2008, many bankruptcy attorneys used to generally tell clients to get divorced and then file for bankruptcy – because this way, the property settlement was firmed up, and clients would know what assets and debts they would receive.  Also, filing bankruptcy after the divorce is initiated, but before the divorce is final, only halts the divorce process until the bankruptcy is settled.  However, economic times have become so tough that many bankruptcy attorneys are now telling clients to declare bankruptcy and then file for divorce after the bankruptcy is settled.  Moreover, if couples file bankruptcy together, they can save the additional cost of another separate bankruptcy filing. 

There are generally two types of personal bankruptcy, and they depend on a number of factors and depend on the size and type of debt, income, etc. 

In a Section 7 bankruptcy, most debts are erased, but there are lower income limits for people to qualify.  In a Section 13 the debtor is put on a repayment plan and a very tight budget.  People with higher incomes are usually placed in this type of bankruptcy program. 

Seeing an experienced bankruptcy attorney before the divorce can help avoid numerous problems.  For example, a client with struggling business was taking money out of his IRAs to fund living and business expenses.  He was also taking a salary from his business.  Not only were taxes and penalties incurred for the early withdrawal of funds from his IRA, but he was being taxed on his salary as well.  Because of withdrawals from IRA, and his salary, he was making too much money to qualify for a Section 7 bankruptcy, which meant that his debt would not have been dismissible.  He would have had to file a Chapter 13 bankruptcy, whereby he would be on a strict repayment plan.  Not only did he create a large, unnecessary tax burden for himself and his ex-spouse, but he depleted an asset that didn’t need to be depleted – his IRA.  Remember - IRAs are generally protected from bankruptcies up to one million dollars.   See a bankruptcy attorney before divorce – or before you withdraw funds from your IRA if you even have an inkling that you might be headed towards bankruptcy.

These days, bankruptcy and divorce often go hand in hand.  It is critical that couples in tough financial situations who are considering divorce, also consult divorce attorneys and financial specialists early in the process.  These professionals can help them with the timing of their divorce and potential liquidation of retirement assets.  To do otherwise can potentially lead to couples losing money that they can ill-afford to lose.

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September 3, 2009 by wendy.

Most couples going through divorce are fortunate to have any life insurance.  Generally the most common type of life insurance is group term life insurance, usually through an employer.  However, some more affluent divorcing couples may have some complex finances, including Irrevocable Life Insurance Trusts, Estate Trusts, second-to-die life insurance polices, life policies with high cash values, and various annuities.  When dividing assets in divorce special care needs to be taken regarding these assets, whether the couple is using attorneys or if they are divorcing pro-se (or do-it-yourself). 

First, these types of assets are not as easy or simple as most people think.  The owner, the insured and/or the beneficiary may be different than one of the spouses believes.  If, for example, the wife is intending the a life insurance policy to “insure” spousal payments of any sort, and the beneficiary is changed or not reaffirmed after the divorce, the wife could potentially lose a great deal of money in the event of the untimely demise of the ex-husband.  Further, if a spouse is intending to use the cash value from one or more of the policies, the stock market fluctuations may have left the policy with no cash value, or worse, upside down and requiring payment of expensive premiums.

These types of assets were usually purchased as a solution to estate planning issues.  With the couple divorcing, the estate plans will need to be revisited.  Assets of this type may not be able to fulfill the original purpose – and may not need to do so after the divorce.  Couples considering divorce may need to carefully review if they have a need to continue these assets in the future, and if they have the income to continue making premium payments.  They may decide to cash out the policies – but will also need to consider any income tax issues that could result

Finally, people with these assets will need to carefully understand what they can and cannot do with them before they sign any settlement agreement.  One of my financial investment colleagues asked me how he was supposed to divide an annuity that one of his clients (a couple) agreed to split in their separation agreement.  Neither of the couple had contacted the annuity company to find out if dividing an annuity pursuant to a divorce was even possible.  I had to tell my colleague to call the annuity company.  The last I heard was that the company declined to separate the annuity – and have no more details. 

The bottom line is – if divorcing couples have life insurance, trusts and/or annuities, they may need to involve the expertise of a person who understands the financial complexity of these assets.  Making any mistakes can seriously cost divorcing people a significant amount of money – and possibly jeopardize their financial future – especially if one of the party is relying on insurance or annuity payments that they may not receive.

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August 25, 2009 by wendy.

A lot has changed in a year’s time.  The old rules for financing and refinancing a house are very different than they were during the real estate boom.  So when couples are figuring on how to split assets, they will need to ensure that the spouse who takes the house can actually obtain a mortgage.

The downturn in the real estate market is one big reason.   Homes are often worth less than the price that they were originally purchased, leaving the buyers “underwater” or owing additional funds upon the sale of their house or any refinance.  Appraisals, too, have changed.   Most mortgage lenders do not get to choose their appraisers any longer – but must have an “arms length” relationship.  Appraisers often need two comparables in the neighborhood, two listings under contract, and will include any neighborhood foreclosures in the price.  Furthermore, appraisals are only good for a certain length of time before they must be redone to make sure the price is still accurate.  Lenders really don’t care how nice your house is – only that the value is accurate.

The mortgage scene is also much different.  For one thing, lenders are taking a much closer look at an applicant’s finances.  People with assets but no income need not apply.  So this may eliminate spouses who have received a settlement of cash or other assets, but who have no income, or who are just getting back into the work force.   Lenders also want to see a history of the applicant receiving child or spousal support – some for 3 months, others for 6 months (if the applicant is using support as income for the loan).  And some lenders want to see at least 3 years of child support written in the settlement agreement.  Most lenders will not want to issue a mortgage for a house payment of more than about 28% of the applicant’s income.  They do not want the mortgage to be more than 36% of gross monthly income.  Additionally, credit scores must be good, and most lenders will want a credit score of 720.  Lenders are asking for 10% down for a conventional property, 20% for a vacation property, and 25% for investment property.  VA and FHA loans have different requirements, but some of those can be fairly tough.  Lenders are often treating the “deed in lieu of foreclosure” and short sells as regular foreclosures.  Thus, people having gone through such home “give-backs” may find themselves unable to refinance or receive a mortgage until more time has passed.

Be aware that it is also taking longer to close loans.  The paperwork and disclosures have become more onerous, and so a closing generally cannot be done in less than 30 days.  Many lenders laid off a number of employees last year, so your refinance or mortgage may move more slowly than expected.

What does this mean to divorcing couples?  Some may not be able to refinance their homes because of a low house appraisal.  Others may not be able to refinance at all on their credit, salary, work history, or for other reasons

If a divorcing couple cannot sell the house and cannot refinance the house in one person’s name, there are few options.  Live apart and wait until the housing market comes back?  Have the spouse receiving the homework on their credit and income?  Before any paperwork is signed, it would be advisable for one or both parties to consult a mortgage broker to determine each person’s ability to obtain a mortgage or refinance.  Moreover, they would be advised to consider the worst case scenarios of their proposed settlement and plan for these should they occur.

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August 17, 2009 by wendy.

There is an old joke that family law attorneys tell about divorce that goes like this:  “ Why is divorce so expensive?  The answer is – because it is worth it.”   Although this is dark humor about a very serious subject, I don’t think that divorce needs to be as expensive as it sometimes is, especially if couples do not allow their emotions to get out of control, and are able to work together, rather than to go to court.

With the economic situation as it is, many couples are forced to spend as little money as possible on divorce, often opting to forego legal and financial advice.  While limiting the cost of the divorce is important to most people, doing things correctly is also critical, and most couples are unfamiliar with the legal and financial nuances of divorce.  Most divorced people heal from their divorces and are able to go on with their lives within about a year.  At that point, they then may realize that they have a really crummy settlement agreement, at which point it is too late to make any changes.

Divorcing couples generally have one chance to get things right during a divorce.  According to Fadi Baradihi, CEO of the Institute for Divorce Financial Analysis, speaking at the IDFA National Conference in Chicago, on July 2009, “Do-it-yourself divorce is very likely to create time-bombs for couples who do not understand the legal and financial implications of the agreement they have created and signed using a kit or online service.  This is where a financial professional trained in the special issues of divorce can really help.”

For example, settlement agreements may need to contain a number of clauses to protect each party as the economic situation changes.  What if the house can’t sell?  What if one party wants to get their portion of the equity from the house and the new appraisal indicates that there is less equity than estimated, or worse - a negative equity?  What do they do with the stock options that are underwater?   What if the spouse getting the marital home cannot qualify for the mortgage payments?  How long must they receive maintenance or child support payments to qualify for the mortgage?  Which assets should they select to receive as their portion?  If one spouse is considering bankruptcy, would cash or the IRA be a better asset?  What happens to child and spousal support if the payer spouse dies before the payments end?

I have actually had to adjust agreements as the stock market was falling to include clauses that indicated how “investment experience” on various accounts was to be treated.  In another instance, I was discussing with an unemployed client the possibility of refinancing her house, and the mortgage refinancing rules were changing as the divorce was occurring.  By the end of the divorce, the rules had changed so that she was unable to refinance – she received a lot of assets as a result of the settlement, but had no income.

The Honorable Judge Kathleen McCarthy, in Wayne County, Michigan, sees a lot of pro-se, or do-it-yourself divorces.  She says that so many of them are poorly done and fraught with legal and financial problems.  Her words of wisdom are, “Most people would benefit from spending a least a couple of hours consulting an attorney and/or a divorce financial professional to avoid future problems.”

I understand that most couples going through divorce just want the pain to end and the hassles of divorce to be over.  I have had couples tell me “I don’t care what happens – let’s just get it done and the sooner the better.”  I have had to remind them that this is an agreement that they will be living with for years – so having a little extra time to think things through and to make sure it is right for them is so important.

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July 17, 2009 by wendy.

The last blog I wrote discussed the fact that many people may be too poor to get divorced.  A new twist was described recently in the Wall Street Journal article, dated Monday, July 13, 2009, and titled “What God Has Joined Together, Recession Makes Hard to Put Asunder.”   The author, Jennifer Levitz, interviewed several couples that have gotten divorced, but still live in the same house.  The reason for this situation is twofold:  one of the couple is unemployed and/or they are unable to sell the family house.  According the couples interviewed, they seem to manage their lives OK, even if it is awkward at times.  Certainly it is not a desirable situation, but they have chosen to reside in the same house at least until their financial situation improves.  I saw this situation occur with clients in my practice.  They are still living in the same house, and trying hard to make a difficult situation work, with varying degrees of success.

Ms. Levitz also discusses the fact that couples are delaying the decision to divorce, even though their relationships are not working for several reasons – some are uncomfortable at being single during this recession, or they are waiting until economic times improve.  I found that a similar prevailing sentiment developed after the September 11, 2001 attack and persisted throughout 2002.  After that, the economic situation improved, and people began filing for divorce once they were more financially comfortable.  Eventually couples found a way to dissolve their marriages if they wanted to do so.

Some ideas for people stuck in this situation:

1.      Work on your relationship.  Spend some of the time actively trying to improve your relationship with your current or ex-spouse.   Get professional marriage counseling help if you feel you need it.

2.      Jointly develop some rules or guidelines – about sharing household tasks, respecting privacy, dating, and parenting, for example.  A professional mediator may be able to help you work through these issues and to jointly develop a plan for living together until you can physically live apart. 

3.      Schedule some separate time.  Try not to spend a lot of time together if the togetherness makes your relationship worse.  Find activities to perform in the house that you will do separately, or schedule outside activities with friends and family if possible.

4.      Work on your finances.  Prepare a budget and stick to it.  Cut expenses where you can – be creative!  Review your assets and your liabilities and reduce your debt where possible.  Do a “what-if” budget assessing your expenses for if and when you divorce.  You will need to know this information anyway to make good decisions about dividing marital assets when you do decide to divorce. Contact a financial professional experienced in divorce matters if you need help.

Do you have any other thoughts on how to handle this situation?  If so, please let me know!

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July 10, 2009 by wendy.

It really is true what they say – these days some people are staying married because they don’t have the money to get divorced.  An article in the Wednesday, June 8, 2009 Denver Post substantiates this issue.  Of “certified divorce financial analysts” surveyed by the Institute for Divorce Financial Analysts, 68 percent spoke of clients who could not afford to get divorced because of the recession.  Couples, however, should never give up on the hope of giving up all hope.  Said Fadi Baradihi, the group’s CEO:  “It’s imperative for divorcing couples to keep in mind that the current economic conditions will indeed change.”

How much does it cost to get divorced, recession or not?  That depends on each couple’s situation.  First, there are various fees for filing the paperwork at the county in which the couple lives.  This could be $500 or more.  Couples with children under 18 are required to each take a parenting class, so add perhaps $100 to the tab.  These fees are for couples filing pro se, or without legal representation.  Moreover, these fees do not change, whether economic times are good or poor. 

If couples get stuck and need mediation or divorce financial advice, they can expect to pay for a few hours of consulting time, or for the entire mediation plus having their settlement agreement drafted for them.  Let’s say $300 to $2000, although it could be more or less, depending on the issues.  If Qualified Domestic Relations Orders (separating pension plans or 40lK plans) are required, add on $500 for each.  What about a business, real estate or pension valuation?  The fees vary widely for qualified professional valuations - anywhere from $200 (property valuation)  to $10,000 (business valuation) or more, depending on the asset being valued.  Some people may decide to ask an attorney to review their settlement agreements, and this could run $500 to $1000. 

If all does not go well, and the couple has decided to engage quality legal professionals, these fees will often begin at $5000 to $10,000 each and can go upwards from there, especially if the divorce is acrimonious and they settle in court.  Expert witnesses may be engaged, depositions taken, exhibits prepared, all of which are expensive.  Certainly, it is less expensive to mediate than to litigate. 

The costs of actually physically separating and the couple’s economic circumstances often are the deciding factors when considering divorce.  One caller told me her spouse was unemployed and they could not afford to pay their bills and live separately at this time.  Other people have not been able to sell their house.  They could not afford to make the house payments and pay rent on a separate place for the other spouse.

The costs of filing for divorce and paying for legal, financial, and mediation experts will not change.  However, Mr. Baradihi is correct.  At some point, the recession will end.  People’s financial situations will turn around, especially if they have made efforts to manage their finances in a careful manner.  Until then, people might consider seeing a therapist, getting additional exercise, or somehow managing their stress in a positive way.  Hang in there.  Most people’s economic situations will change as the recession recedes.

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July 8, 2009 by wendy.

Divorce is often devastating enough without having money problems.  Unfortunately, money is often one of the underlying reasons for divorce.  These days, with money in scarce supply, matters have become worse.  Couples who wish to divorce are finding it even more difficult to end their marriages.  Consider the following scenarios:

1)      One or both spouses may have been laid off, or unable to fid jobs even if they wish to return to the workforce. 

2)      A couple may not be able to sell their home in the current real estate market because their mortgage may be higher than their current home value. 

3)      A couple may find that their debts are so large that one or both of them may not be able to actually afford the payments while married, much less when divorced.

4)      One or both parties may not be able to financially survive the expenses of setting up and maintaining two separate households. 

How are people handling this situation?  Although divorce filings are up in many of the Colorado front range counties, a number of couples are filing pro-se, or without legal representation.  This may be workable for simple cases, and can save couples a considerable amount of money.  However, some people may make serious legal or financial errors that can affect them far into the future.  At the very least, couples divorcing pro-se should consult a financial expert specializing in divorce to review their situation, and an attorney to review their final documents.

Other couples are staying together and toughing things out until their financial situation improves, such as one party becoming re-employed.  This may be a practical, although possibly difficult, approach.  Deferring divorce temporarily may make sense if it appears that the bad financial situation is only temporary, and there is no violence or abuse occurring.

 Some couples are opting to physically separate, and live with friends, family, or somehow apart from each other until they are financially able to file for divorce.  This makes a lot of sense, especially if the tension and disagreements are making the household situation unlivable.  While it may postpone the inevitable, at least the couple may be able to live in a more peaceful environment until their financial situation improves.

Other couples are considering bankruptcy, and then divorce.  If they have income, but a lot of debt, this may be an alternative to consider. However, people in this situation should always consult an experienced bankruptcy attorney before making any decisions.  Although bankruptcy attorneys charge several thousand dollars for their services, couples may be able to get themselves out of the burden of extensive debt, and then can go on with their lives. 

The final way that people can get divorced and potentially save money is to consider mediation.  If a couple agrees that a relationship (because of children, family, and/or friends) is important, or they do not have significant disagreements over most of the items in a divorce, mediation may be the right approach for them.

These are the ways that I have heard about couples dealing with divorcing during the recession.  Does anyone have any other approaches that they know of?  If so, please let me know!

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May 26, 2009 by wendy.

I asked Bernadine Merker to write a few words about divorce from the perspective of stress - and how it affects our lives during divorce.  She contributed the following information:

Divorce is a major life event that affects everybody in the family. It is an ending that was not expected and it uproots spouses and children’s plans with an intensity that often takes years to resolve.  As this process begins, many of the symptoms described below develop as people try to cope with the major changes that they are undergoing:  

      Although time often heals, it is important to make sure that these symptoms don’t continue to affect moods, health, and relationships, school and work performance. If they do it is time to seek professional help for both you and your children. A visit to your family doctor and an evaluation with a mental health professional are a good place to start!  As with any other thing in life, the sooner you take steps to deal with it, the faster it is resolved. Counseling can help everyone work through those feelings that arose from the strain of the relationship, and the divorce. It can provide a safe place to move past these feelings and re-claim your life. It can also be a place to learn techniques to cope, calm anxiety, and feelings of loss and anger and restore stability. Asking for help is strength, not a weakness! Getting support at a time in your life when your world feels upside down can only help restore balance and help you get on with your life.____________________________________Bernadine Merker LCSW is a licensed professional counselor with over twenty years of experience. She has counseled children, adolescents and adults who are undergoing major life changes, anxiety, depression, bi-polar disorder and PTSD.  She facilitates CONQUERING ANXIETY, an 8-week workshop designed to provide the tools to manage anxiety/ panic disorders. Her office is located off I 25 in the Denver Tech center. She can be reached at (303) 770-0940.

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May 14, 2009 by wendy.

Divorce is one of the most stressful of all life events.  Stress can create insomnia, illness, and often impedes objective and critical thinking.   Having one or more of the stress-related issues is not conducive to decision-making, especially when these decisions can impact the rest of your life.

I asked a colleague of mine to comment about the use of exercise to reduce stress. Marta Burns, who teaches classes in karate, told me:  “It all started when a good friend of mine and well- known counselor in Denver (Bernadine Merker), called me up and said she would like me to work with people that she counseled.  I asked myself “Why?”  I then realized there are many benefits my karate class offers and that I could give a new meaning to my work and teaching – that is helping others in need.  The confidence in my body and mind, is, in fact a skill set that I can teach to others.”

People say a divorce can be one very traumatic and scarring experience in life. A divorcing person is now facing the world alone, rejected by the one person they could always trust. Regaining ones’ confidence of mind and body is an essential part of the recovery process.

Marta further told me about the many benefits of a karate class.  “Karate is designed to teach individuals a variety of techniques that allow them to protect and defend themselves. It is a great feeling of empowerment to know you are able to defend your self and think on your feet. This is not the only benefit that karate offers. For example:

1)                 Karate drills and exercises structure can result in a great release of anger and stress.  Much like when you were a child and punching your pillow made you feel better, in the

            same way karate shield drills and other stamina exercises let you feel calm, peaceful and more centered.

2)                 Another benefit that comes with practice is more physical capabilities and a better look and feel to your body. A strong self-image always projects into others aspects of life.

3)                 Karate practice redirects your thinking towards new goals: confidence, health, physical abilities, meantime giving you the confidence of a new family and loyal friends as you

            train with others like you in class.

4)                 Karate uses physical exercise and training to instill confidence and calm while at the same time providing the feeling of insulation and supportive family structure thru the Karate

            class.”

If you have any questions about karate or her classes, please contact Marta Burns at:

Sensei Marta Burns

Kyokushin Karate

www.satorydojo.com

720-338-9780

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