Chapter 1
Legal vs. Financial Realities of Divorce

Lessons in Legal Reality............................................................. 11

Most Divorces Are Settled Out of Court................................... 12

Divorce Law Is Local................................................................. 13

Don’t Expect the Legal System to Take Care of You............... 14

Your Future Is in Your Hands—Not the Court’s........................ 16

It’s Easier to Write Laws Than to Enforce Them....................... 17

Your Best Strategy: Think Financially—Act Legally............... 18

Legal vs. Financial Stages of Divorce....................................... 18

Sooner or later during your divorce, you will discover one insight that is central to this book and to the successful outcome of your settlement:

Legal reality and financial reality are fundamentally different.

A seemingly simple idea—but you’d be surprised how long it takes to sink in. To help you understand why this concept is so important, take a few moments to consider the following real-life divorce stories. In each, read the Legal Reality first. Then, see the true outcome in the Financial Reality side.

Moral of the story:
Getting something “in writing” from the court
doesn’t always mean you’ll get it for real.

Moral of the story: A 50-50 settlement isn’t always equal.

Lessons in Legal Reality

Ending a marriage with no assets or huge debts is the hard way to learn about divorce. Your lessons do not have to be so costly. You would never try to play basketball with football rules or to cook Chinese food using classic French recipes, would you? Similarly, you must learn to follow the correct “rules” for playing in the legal league versus the financial field.

The following five guidelines explain the legal basics of divorce:

Most divorces are settled out of court.

Generally, divorce law is local.

Don’t expect the legal system (or a lawyer) to take care of you.

Your future is in your hands—not the court’s.

It’s easier to write laws than to enforce them.

Most Divorces Are Settled Out of Court

You may imagine that you’ll have a divorce trial like those on an old Perry Mason or L.A. Law episode—every­thing settled in an hour with the “good guys” win­ning. Perhaps you’re waiting for your day in court when you can explain to a wise and kindly judge the exact wrongs your spouse has visited upon you.

Don’t count on it.

An estimated 90% of divorce cases are settled without a court trial. Most of your settling will be done through meetings between you and your spouse or between your lawyers, often on the courthouse steps. As the trial date nears, you will quite likely be rushed into conferences in the courtroom hall or coffee shop. In these frantic meetings, your spouse and/or the attorneys may confront you, demanding instant decisions on issues that will affect the rest of your life.

Most divorce courts today are pri­marily concerned with money, not morals. The main job of the legal system is to resolve property disputes and to ensure the welfare of children. Spousal misconduct, of course, could affect custody, and economic mischief (such as hiding assets) can change the outcome of the final settlement. But by and large, you will not get a chance to vent feelings about your mate in the courtroom.

The impersonal atmosphere of the legal world may baffle you. But, in fact, it is often to your advan­tage to stay out of the courtroom. As long as you and your spouse work toward a settlement without involving the court, you can trade property, negotiate terms, and still maintain some measure of control over your destiny. If you cannot reach a settlement and must have a trial, however, you put your fate into the hands of a judge—a stranger who knows nothing about your children or property. You’ll have to live with whatever that judge decides.

Divorce Law Is Local

Divorce laws not only differ from state to state, but interpretations of divorce law can vary from judge to judge. Whether you ultimately hire an attor­ney and whether or not you have a court trial, you should ask a local lawyer to assess the most likely outcome of a divorce like yours. Ask about the types of settlements local judges tend to approve. Find out how the local courts and individual judges view mediation. Also ask about judges’ attitudes and the prevailing mood regarding, for example, joint custody, moving away with the children, or alimony.

Divorce courts are unlike other courts. They are called “courts of equity,” which means that the judge has wide discretion in making decisions. While a lawyer can educate you on the law, a lawyer cannot ethically or realistically promise what the judge will do in your case.

You may not like what you hear when you see a lawyer, who may tell you that the things you want in your divorce are impossible to get. Another attorney may promise you everything, but ultimately deliver nothing. Interviewing several people for a cross section of opinion can give you a more accurate picture of your situation. (See Chapter 7 for information on hiring an attorney.)

If you know how individual judges normally rule in your locale, your expectations will be more realistic. Even if you don’t have a trial (remember, 90% of cases are resolved before a trial), divorce lawyers tend to give advice that is consistent with local court rulings. Granted, it’s hard to ignore sensational news­paper stories about big-dollar divorces in other parts of the country. But those cases are irrele­vant. You must concentrate on what happens in your backyard, because that is where your divorce and your financial future will be decided.

Affording Attorneys

Throughout this book, we may tell you to “check with an attorney” on various questions. We say this because the individual circumstances of your divorce may require legal information beyond the scope of this book.

But who is going to pay for this costly legal advice?

Attending a brief consultation with a lawyer should not bankrupt you. Organize your thoughts and ques­tions before you seek legal advice so you can save time when the attorney’s meter is running. At an initial visit, spend an hour—not a day. Then go home and think about how much more you may have to spend on an attorney.

In some cases, your spouse may be required to pay all or some of your lawyer’s fee. The lawyer should be able to advise you about this at the initial consultation.

If you have very little money and feel you truly need advice from an attorney, consider borrowing money, holding a garage sale, or taking a short-term second job to get some money to pay legal fees. As an inex­pensive alternative, see whether a local law school or bar association has a divorce clinic where law students can assist you.

For more information on finding—and working with—lawyers, see Chapter 7.

No matter what other decisions you make, here’s an important rule: Do not let your spouse’s attorney or anyone else chosen by your spouse be the one to represent you. If your spouse is represented by an attorney, you should be also. Except in very limited circumstances, one attorney cannot represent both parties in a divorce action.

Don’t Expect the Legal System to Take Care of You

One of the most costly illusions in divorce is the idea that the judicial system will protect your rights and meet your needs. You cannot afford to make that assumption. You are the one who must make the decisions in your divorce, because you are the one who will have to live with them.

Attorneys and other professionals can help you understand your rights during divorce, but they should not determine what your financial needs will be once the marriage ends. Just because you are “entitled” to a certain asset (say, the house), that does not mean you can afford to keep it. Even though you may want to remain a freelancer, you may have to get a steady job so you can support your family after a divorce. Only you can make these decisions.

Instead of passively going through the motions of your divorce, you might do better by adopting the active attitude of an entrepreneur. Businesspeople starting a new company go to lawyers to have them formalize agreements and assess legal risks. The entrepreneur sits down with accountants and financial professionals to crunch the numbers and determine whether a business will turn a profit. Only then, after examining the financial aspects of a venture, do they consult attorneys about potential legal problems.

Likewise, you must be the one to call the shots in your divorce. Don’t expect the legal system to make the decisions that are best for you.

Don’t Be Afraid to Ask Questions

Don’t be intimidated or afraid to ask questions if something is unclear. One divorcing woman admitted that some of her troubles resulted from her own unwill­ingness to appear ignorant. In an interview with sociol­ogist Terry Arendell in the book Mothers and Divorce, the woman recalled her divorce and commented, “Part of the problem was my own fault. I gave the appear­ance of being knowledgeable. I knew more about buying pro­perty and bank accounts than my lawyer did, but I didn’t understand all the tax things. And so I was reluctant to ask some of the things I should have asked.”

Your Future Is in Your Hands—Not the Court’s

The legal system is not designed to help you with your finances once the divorce is granted. For example, you may legally and fairly split the benefits of a pension plan in a divorce settlement, but when the time comes to retire, you may have less income than you need to live on. The court cannot anticipate or resolve that problem for you.

Further, the implications of future taxes on property are not taken into account in settlement agreements in most states. Generally, only existing—or impending—taxes can be factored into a division of assets. Anything beyond these taxes is considered speculation—and specu­lation is not normally wel­come in the courtroom. For example, if, as part of the divorce settle­ment, you and your spouse will sell $40,000 of stock at a profit, the taxes owed on the profit will be factored into the settle­ment and could be split between you. If you keep the stocks and your spouse gets another asset of the same value, the court will not grant you more at the time of the settlement to cover whatever amount of taxes you may owe in the future.

In short, you cannot leave com­plex, multifaceted money questions about your future to the one-dimensional perspective of divorce law.

Definition: Settlement Agreement

Throughout this book, we refer to marital settle­ment agreements, property settlement agree­ments, settlement agreements, or simply agree­ments. They all mean the same thing. A settle­ment agreement is a written contract between you and your spouse outlining how you will divide your property and debts, the amount of alimony and child support, who will pay it and who will receive it, who will have custody of or visita­tion with the children, and other major issues. If you and your spouse are unable to reach an agreement on these issues (on your own or with the help of a mediator), you will have to go to court to have a judge resolve them. Once these issues are finalized, they are incorporated into the final divorce decree.

It’s Easier to Write Laws Than to Enforce Them

Laws concerning child support payments are among the most stringent on the books. Yet every year, millions of parents don’t receive the money to which they are legally entitled. Nonenforcement of court orders is one aspect of legal reality for which you must prepare yourself. As you go through each step of your negotia­tions, ask, “How will I handle this if my ex refuses to abide by the agreement or the judge’s orders? What options do I have to enforce this agreement?” And most important, “How much will enforcement cost me?”

Covenant Marriages

Three states (Arizona, Arkansas, and Louisiana) provide marrying couples with the option of entering into a “covenant” marriage. A covenant marriage makes it more difficult to get a divorce and is an alternative to a traditional marriage permitting divorce without restrictions. In addition to undergoing premarital counseling prior to their wedding, a couple wanting to end a covenant marriage must wait a full two years before proceeding, and may divorce only for reasons such as adultery or alcoholism. Parties in states offering covenant marriage are free to enter into a traditional marriage if they prefer. Opponents claim covenant marriages will force some women to stay in an abusive relationship.

Although most states that have considered covenant marriage laws have rejected them, Arkansas adopted covenant marriage as recently as 2001, and such laws are still pending in several other states.

When you recognize these risks ahead of time, you can take steps to minimize them.

To enforce your divorce agree­ment, you will probably have to go to court. The process is expensive, time-consuming, and emotionally draining. If at all possible, keep animosity to a minimum after the divorce so that both parents’ custodial or visitation time with the children goes smoothly. In turn, that may make it more likely that your ex will make alimony and child support payments on time.

Your Best Strategy: Think Financially—Act Legally

Make your financial concerns the centerpiece of your divorce, and work within the framework of the law. That is the most powerful position you can take. If you think financially and act legally, you will be able to anticipate risks and assess your needs, before a financial disaster hits.

No one wants to negotiate for an asset in a divorce and then be unable to sell it because they’d owe too much in taxes. Why should you go through the nightmare of settlement negotia­tions only to end up losing everything you fought for six months after the divorce is over?

Remember: The legal process of divorce is something you will live through—but the financial reality is what you will have to live with for the rest of your life.

In a divorce, it’s not what you get that counts—it’s what you keep.

Legal vs. Financial Stages of Divorce

Use the following table to help understand the rela­tionship between the legal and financial stages of divorce. These stages will be explored in more detail throughout the book. Keep in mind that few divorces will follow the steps in this exact order.

Nolo’s website, www.nolo.com, contains legal information and resources that will help you through your divorce. In addition, several sites specialize in divorce information. Typically, these sites include forums, message centers, and chat rooms on topics such as custody, mediation, parenting, child support, debt, grandparent issues, and divorce in the military. Many contain articles and books on divorce-related subjects and state-by-state explanations of the law. Some can help you find professionals—lawyers, therapists, mediators, or financial advisers—to assist you in your divorce. Some require small membership fees for full participation.

www.aaml.org

www.divorceasfriends.com

www.divorcecare.com

www.divorcecentral.com

www.divorcedirectory.com

www.divorceinfo.com

www.divorcenet.com

www.divorcesource.com

www.divorcesupport.com

www.divorcewithoutwar.com

www.lifemanagement.com/flyingsolo.