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Is Litigation Bad?

As a long-time member and past president of the CT Council for Non-Adversarial Divorce (www.gooddivorceCT.org), I am prone to be biased about the traditional litigation process as a means to resolve a divorce. I strongly believe that mediation and collaborative divorce (explained in an earlier blog) are a better way to go. That being said, sometimes litigation is the only available option.

I was just speaking with a collaborative divorce attorney who is representing a husband. She told me that he is being rather uncooperative and that she is considering a recommendation that the case be referred to litigation attorneys. This would be unfortunate, but if an individual refuses to act in good faith, a voluntary process such as mediation or collaborative divorce just won’t work. The other spouse would be at risk of signing a bad agreement if not all of the information is disclosed openly and honestly. If you find yourself in this or another similar situation and the last resort is a litigated divorce, please keep a few things in mind before you select an attorney.

Unless you think there is a really good chance your case will go to trial (only about 5% do), you should probably avoid hiring a “big gun.” Most of the uber-expensive attorneys in my area (like $700 – $800 per hour) are paid that kind of money for their trial expertise. I know great attorneys that bill under $500 that I refer to all the time. Since the vast majority of cases settle, it makes no sense to pay those crazy fees. I just worked with a client that spent $175,000 on a case that settled without a trial. She hired one of the highest paid lawyers around based on one person’s referral and did no investigating of her own. I’m sure she could have gotten the same deal for a quarter of that fee.

You also want to be sure that the attorney you hire isn’t going to purposely stir things up just to create a stronger need for legal action which he or she can bill for. When you interview an attorney and they start talking about how you can screw your soon-to-be ex and take him/her to the cleaners, you should run for the door. A good attorney will listen to your situation intently and try to help you settle the case with the least amount of acrimony possible. Believe it or not, there are compassionate lawyers out there that want to do the right thing.

If you are in CT, I would be happy to refer attorneys that are willing to litigate a case but will not soak you financially. Hiring the right lawyer is one of the most important decisions you will make in the entire divorce process, so don’t take that responsibility lightly.

Why Use a Financial Planner in a Divorce

Traditionally, once a decision is made to initiate divorce proceedings, the professional of choice to consult with is a family law attorney. As divorce is a legal process, this certainly makes sense. But should the lawyer be the only professional involved?

In cases involving highly complex tax and financial issues, potential fraud or the need to value a business, it is common for attorneys to call on a financial professional (typically a CPA) to assist with the case. However, in the majority of cases that would qualify as “average”, is there a need for a financial planner?

To answer that question, you need to ask yourself a simple question: “Am I confident with my financial future post-divorce?” If yes, you probably don’t need to consult with a planner. But if you are uncertain about how a potential divorce settlement will impact your future, it’s a good idea to get some advice.

So how can a financial planner help? First of all, you should be talking to an individual that specializes in divorce issues. A Certified Financial Planner is not trained specifically in divorce-related tax and financial issues unless he or she obtains additional education in that area. One of the better programs is the Certified Divorce Financial Analyst designation. A professional trained in this area can assist you by providing you information that will allow you to make the best decisions for your future. Some of the areas he or she can help you with are the following:

  • Income tax implications with alimony and child support
  • Cash flow analysis of various post-divorce scenarios
  • Analysis of property settlement options to ensure against tax surprises
  • Income tax estimates to properly measure net income after support is paid or received
  • Assistance with preparing a realistic post-divorce budget to verify the affordability of proposed support scenarios
  • Helping you to determine liquidity needs prior to a property settlement so you don’t end up with the wrong type of assets (i.e. real estate as opposed to retirement funds)

These are just a few examples of how a divorce financial planner can help you make the best decisions before you sign off on an agreement. Regardless of the complexity or net worth of your case, getting answers to these questions will help you avoid potential financial problems down the road.

 

Alimony v. Child Support

What is the difference between alimony and child support? There are two distinct differences: child support, in general, is not taxable and the amount is determined based on specific guidelines set  by the state. Alimony, on the other hand, is taxable to the person receiving it and tax deductible to the person paying it (as long as it qualifies per the Internal Revenue Code). In addition, the majority of states do not prescribe any specific guidelines for the amount of alimony to be paid.

In Connecticut as well as many other states, it is common practice to combine both alimony and child support together as one payment. As long as this payment qualifies under the statutes, it is possible to claim the entire amount as taxable support. The big question then becomes how should support be structured? As a combination of child support and taxable alimony, or as one combined payment treated as taxable support? The answer to this question lies in careful tax analysis. Every case is different and depending on the level of income, the number of dependents, the amount of deductions and other considerations, the answer could go either way.

If you are in a situation where you are confronted with either paying or receiving support, you owe it to yourself to ask this question to a qualified tax expert. If you are in a cooperative situation with your soon-to-be ex spouse, the two of you can structure an agreement whereby you minimize the tax impact of support and maximize cash flow to both parties. A win-win situation which is not always easy to achieve in a divorce.

More on Alimony Reform…

On June 6 I attended a lively meeting in Westport regarding the reform of CT alimony statutes. The meeting was hosted by the organization CT Alimony Reform (CTAR). It was interesting to hear their perspective on the various problems with the current system. I think everyone agreed that the family courts are overwhelmed and essentially broken.

My take from the meeting is that the organization is pushing hard to provide relief for the alimony payer. I strongly agree that there have been some horrible decisions made that create devastating hardships for the breadwinner of a divorce. However, there are also many occasions where the opposite is true.

Some of the proposals the group has presented include limiting alimony duration to half the length of the marriage and capping the amount to 35% of combined gross income. There are deviation criteria to account for extenuating circumstances such as health issues, tax considerations, unearned income sources and several others. One of the arguments against this bill is that there will be just as much litigation over the deviation criteria. That of course is speculation, so it may or may not be a valid point.

I agree with the group that something needs to be done about the CT alimony statutes, but I think they should slow down and engage the divorce professionals that see both sides on a regular basis. We all want a better system and more consistency with regard to alimony awards, but rushing in with a one-sided solution is probably not the answer. I look forward to a continuing dialogue with this group and hope that one day we will improve the divorce process in CT as a joint effort.

Alimony Dilemma – Should CT Reform it’s Laws?

There is a movement taking place in many states, including CT, to overhaul the statutes that pertain to alimony. I have been observing the alimony reform conversation in CT for a few weeks now and will be attending a meeting about the subject on June 6th in Westport to learn more. So far, my perception is that alimony reform is geared toward providing relief to the individual paying the support (Typically men, but I have had a few cases where the wife was the bread winner and pays support to her ex-husband).

Under the present system, I find that after the alimony term ends, the payer generally experiences an immediate increase in his or her cash flow and as a result an increase in his or her standard of living . Unless the receiver of support has been able to find income to replace the alimony, he or she experiences the opposite situation with a sudden loss of income. If you could visualize a graph with one line representing the payer and one the receiver, the two lines would typically be even during the alimony period. At the point of termination of support, the line moves upward for the payer and downward for the receiver representing the increase and decrease in standard of living.

Many would argue that it is up to the alimony recipient to create his or her own income source during the alimony period, which should be seen as a time of transition from dependency to independence. I have some concerns with this view. For example, a mother may have young children and is therefore limited to working only when she can get child care. The additional expense of this care limits her income potential as well. Another common situation is the non-working spouse may have been out of the work force for many years and with such a tight economic environment he or she will find it challenging to locate a job. Even if a job is found, the chances of earning a comparable income to the bread winner is dismal at best.

Every situation is obviously different, so I believe there should be enough flexibility in the statutes to allow for creative alimony agreements. I’m sure there is plenty of room for improvement in the alimony statutes and there is no question the process of litigating family matters is archaic. However, I would rather see efforts made to educate the public about non-adversarial divorce processes such as mediation and collaborative divorce where most of the complaints of the alimony reformists don’t exist. In my opinion, litigation should be the last resort, not the first.

For information about non-adversarial divorce, a great resource is www.gooddivorcect.org.

 

Which Divorce Process is for Me?

In my previous post, I touched on the 4 ways to get divorced; pro se (self-representation), mediation, collaborative divorce and litigation. I thought it would be helpful to discuss each of these briefly to help you decide which one might be the best way to go.

The first and most basic divorce process is pro se. In this process, you do not hire lawyers to represent you. You and your spouse simply roll up your sleeves, sit down at the kitchen table and work out your agreement. When there are simple financial issues and no children, this can be a very cost effective method. It’s probably not the best way to go when there are complicated issues to address such as parenting plans and alimony. The good news is, if you start this way and find it isn’t going well, you can easily move up the continuum and bring in a mediator or collaborative attorneys without having to re-file any paperwork.

If you choose to start with mediation, you and your spouse would select a trained divorce mediator to assist you by facilitating and assisting you with your private negotiations. You have the option of hiring one mediator to handle the entire process, or to use a team such as a family therapist to mediate the parenting plan, a financial professional to mediate the financial issues and an attorney to provide legal guidance and draft the final agreement (I think that is a great way to go). The mediator(s) is not an advocate for either of you. He or she will generally not give you direct recommendations, but instead answer questions and provide information that will assist you in determining the best solutions for your particular situation. Think of it as the kitchen table exercise described above, but with a professional sitting with you to help you through the challenging issues. For couples who feel comfortable sitting together and negotiating with each other, this is an excellent, low cost alternative to going it alone. Another benefit, like pro se, is staying out of court and keeping your negotiations private.

Similar to mediation, Collaborative Divorce is a way of divorcing without getting the court involved other than to bless the final agreement. This process also requires that you and your spouse work together to negotiate an agreement that considers both of your needs. The main difference is that you each hire an attorney to represent your individual interests and to give you legal advice along the way. Collaborative lawyers are specially trained in this process and have learned to throw down their battle axes and work together with their colleagues and clients to negotiate an agreement without going to court. In fact, you will sign an agreement that states that under no circumstances will your lawyers go to court with you to litigate if an agreement can’t be reached. This critical statement changes the negotiation environment for attorneys who can no longer just threaten to go to court. Their focus is one hundred percent on reaching an agreement and settling your case. No time is spent on court filings and trial preparation – saving you from both added stress and spending a lot of money! In some cases, like in mediation, you may decide to use a team approach and bring in a family therapist and/or a financial professional to help with those specific areas.

The last stop in this process continuum is litigation. If your spouse refuses to use an alternative process, if you think your spouse is hiding assets, if he or she is abusive or over-powering, or if you simply feel that you need all of the protection available through the law and the courts, this process is probably best for you. However, beware that this is usually the most costly, stressful and contentious process there is. Legal battles can drag out for years, children often suffer significant emotional stress, and your assets can be severely drained by the time you reach an agreement. It is certainly possible to find two very good lawyers who have your best interests in mind and settle the case without all of the fallout as described above. But even with the best of intentions going into a litigated divorce, the process is designed to be adversarial and couples rarely emerge from it with good feelings toward each other.

If you have children, you owe it to them to put their needs first and try to work things out with your spouse as amicably as possible. Do you want to be that divorced couple who can’t be invited to your child’s wedding because you and your ex can’t be in the same room together? Or would you prefer to be comfortable dancing with one another to honor the biggest event in your child’s life?

I urge you to conduct your own research on this subject. It is one of the most important decisions you’ll make.