When it’s time to divorce, there may be an urge to try and put the marriage entirely behind you, the fact is that your life will probably be entangled with your spouse’s for a long time, especially if the marriage was long term, there are children of the marriage or substantial marital debts. Your relationship is going to change, not end. How you deal with those changes will directly affect everyone’s happiness.
The cost of divorce
The average cost of a simple divorce after a brief marriage with no kids and almost no property is nearly $20,000 per person in the US, and can skyrocket into the hundreds of thousands or even millions of dollars depending on the length of the marriage, the number of children, the complexity of the property issues, the wealth of the parties, the legal, accounting, investigative and other costs in the jurisdiction, the extent of discovery, and the contentiousness of the proceedings.
The parties’ private lives and financial information become matters of public record. The divorce process, especially if it is drawn out and adversarial, can be emotionally damaging and financially disastrous for the whole family.
The negative financial impact of divorce
At least 20 percent of bankruptcies are divorce-related. Sometimes both parties must file. The interrelationship between bankruptcy and a dysfunctional marriage is somewhat of a chicken-or-egg question. Financial difficulties correlate to a higher risk for both divorce and bankruptcy.
Whether money problems cause marital problems or vice versa is unclear. Probably both are true. Money issues are a frequent source of marital strife and arguments. And as a relationship breaks down, people often make themselves feel better by spending more. It may involve going out more or buying things to make them feel better. The increase in debt leads to more arguments and a vicious cycle begins.
But that is not the only source of financial trouble.
The income shock of divorce — changing from one household to two, paying counsel, replacing assets awarded to the other spouse, dealing with elevated childcare expenses, and losing the spouse’s stream of income – make post-separation finances extremely difficult. Single-parent income declines between 30% and 50% in the year following divorce, and many single parents live below the poverty line.
Even for the higher-income spouse, the added expenses and reduced income following a divorce can create a hardship. The inability of one spouse to pay means that the full burden of the marital debt will now fall on the more-solvent spouse, regardless of any court ruling about who should pay. Since creditors are not parties to the divorce, court rulings about debt do not bind them.
The cost of divorce mediation
Court-ordered divorce mediation is paid for by the court, but usually of limited duration. Fully private divorce mediation can cost as little as $500 according to some sources, but realistically a skilled mediator will charge more. The cost of divorce mediation will probably be between $5,000 and $10,000, depending on the number and complexity of the issues to be resolved. The parties split this amount. In one study, couples who litigated reported spending 134% more (more than twice as much) for their divorces than those who litigated.
Of course, where there is a great deal of marital property, costs will be higher, as in litigation. These costs do not include the fees of any legal, financial, or tax advisors during the mediation.
These expenses will also be encountered in all but the simplest divorces. However, since divorce mediation takes place over days rather than months or years, these costs are predictably lower. It is also possible that such expert advice won’t be necessary, though many mediators strongly recommend it. Some even require it.
The negative impact of divorce on children
Divorce is undeniably hard on kids. In addition to one parent moving away and a predictable reduction in time with the custodial parent arising out of that parent’s need to do more to keep the household going, economic losses associated with dissolution may mean moving out of their childhood home to more affordable housing, changing schools and losing contact with friends, teachers, and classmates. In addition to experiencing anger, anxiety, fear, and sadness, children of divorce may blame themselves, feel abandoned, or worry that loving one parent is disloyal to the other. Loss of parental time and resources can also mean the end or serious curtailment of cherished extracurricular activities.
Decades of scientific research since the 1950s has shown that children of divorced parents achieve lower scores in measures of academic achievement, conduct, psychological adjustment, self-concept, social skills, and parental relationships.
Making the most of mediation: A divorce mediation checklist
Mediation settles approximately eighty percent of divorce cases. Those that don’t settle return to court. Given the benefits of mediation (lower cost, faster resolution, self-determined outcomes, preservation of relationships, confidentiality and greater compliance with agreements), it makes sense to maximize the chance of success. Doing this requires preparation, including:
*Anticipating your spouse’s interests and priorities;
*Considering possible concessions;
*Being open to creative solutions;
*Knowing the range of possible court outcomes and the expense of litigation
When negotiators talk about interests, they distinguish them from positions. Positions are what you say you want; Interests are what motivates you to want your interests. Distinguishing between the two is important because impractical positions can be conceded if alternate means of interest satisfaction can be suggested. For example, suppose your interest is financial independence from your spouse, and your position is that you want your college tuition paid. He or she may refuse but have a connection that will offer you a stable full-time job.
It may seem weak to consider concessions even before negotiations begin, but your concessions will drive your spouse’s concessions, just as your offers beget counteroffers. A lack of movement and reciprocal concessions will breed frustration, anger, and failure.
You may want to avoid the expense of paying for a lawyer, tax professional, or financial specialist at your mediation, but depending on the scope of your marital property it may be advantageous. At a minimum, you should meet with them before the mediation to discuss your legal rights and responsibilities, financial realities, and potential tax issues related to the assignment to you of various assets or liabilities, or their liquidation and division.
Litigation outcomes are difficult to predict, especially inequitable distribution jurisdictions where the court has broad discretion based on the needs and conduct of the spouses.
Even in community property states, characterizing property is tricky. Did Aunt Jane leave her house to you (separate property) or to both of you? (community property). Once inherited, was it maintained with your premarital savings (in which case it would remain separate property) or with community property (in which case it would become separate property with a community property interest.) Did you know that pensions are community property only to the extent they were earned during the marriage?
The point is not so much that you need to know the details of property characterization. But if you don’t: a) know the nature and value of your property and liabilities, and b) know your legal rights and responsibilities, you may leave a great deal on the table, or conversely, fail to take a fabulous deal that’s offered. The mediator won’t necessarily advise you. He or she is supposed to be neutral.
Spouses are supposed to disclose all property and debts to one another. The failure to do so can void an agreement, breach a fiduciary duty, and lead to loss of the undisclosed property and an action for damages.
Below is a non-exclusive list of property types you may have, for which you should gather documents and obtain valuations
Possible martial or separate property and supporting documents
* Tax returns with all relevant schedules (Federal & State, individual, joint, family or separate property business, partnerships, living trusts etc.)
* Any documents related to inherited property
*Any documents related to the property given as a gift
* Pay Stubs
* Form 1099’s
* Partnerships, Corporations & Other Business Interests: purchase, financial, title and valuation documents
* Real Estate purchase documents, mortgages, deeds.
* Cars, Trucks, Boats, Trailers, Motorcycles, and RVs purchase, financial, title and valuation documents
* Checking, Money Market and CD Accounts
* Stocks, Bonds, Secured Notes, Mutual Funds
* Executive Compensation – Stock Options, Restricted Stock Units Etc.
* Retirement Accounts and Pension valuations
* Annuities, IRA, and other Deferred Compensation valuations
* Life Insurance (Universal and Whole Life Policies)
* Jewelry, Antiques, Art, Coin, Stamp, Baseball, Comic Book Collections, and Similar Property valuations
* Accounts Receivable & Unsecured Notes
* Real Estate Loans
* Credit Cards
* Other Debts
* Health insurance information
Custody, support, and visitation issues
Public policy and the well-being of children require the support and participation of both parties. Even when addictions or violence issues exist the norm is monitored visitation rather than none. Shared custody is also the norm. You will need to cover the *following custody and visitation related topics:
*Life insurance to ensure financial stability
*Physical custody of children
*Legal. custody of children
*Special needs of children, if any
*Pickup and drop off routine
*Periodically ensuring the visitation plan still works
There’s a lot to do to get ready for mediation. Don’t let it intimidate you. It’s important that you have the necessary information and keep an open mind to make the most of the opportunity for resolution. Should you choose to pursue the divorce mediation route, an expert mediator can help facilitate your divorce proceedings. If you’d like to learn more about filing for divorce in California specifically, please see: How to File for Divorce in California.