One of the biggest financial hits that can come with divorce is the cost of health insurance for an unemployed spouse. Typically, the unemployed or part-time employed spouse is covered under the health insurance plan offered by the other spouse’s job.
In my practice, I typically see premiums for private policies (policies not provided through an employer) between $500 and $800 per month depending on the plan. This cost can vary greatly and can be reduced to almost nothing if certain government subsidies are triggered by the Affordable Care Act (“Obamacare”).
But, in most cases, a family is looking at a substantial additional expense to cover a spouse with no employer-sponsored health insurance.
So, it typically makes sense for a spouse to stay on the other spouse’s employer-sponsored health insurance for as long as possible to save money.
The question then, is how long can one spouse stay on the other’s health insurance? The answer in North Carolina in the vast majority of cases is until the date of divorce.
There may be language in documentation from Human Resources or in the benefits package documentation that mentions “legal separation”. This language sometimes requires the employee to report a “legal separation” to HR so that benefit eligibility for the spouse can be re-evaluated.
This is where the difference between “legal separation” and “legally separated” comes in. A “legal separation” is a specific legal order by a court that is offered in some states, but not North Carolina. The closest thing North Carolina has to a “legal separation” is called “Divorce from Bed and Board”, or a “DBB”. A DBB has to be obtained from a court in North Carolina. You have to put a lot of time, effort, and legal fees into a DBB. So you will know if you have a DBB.
In North Carolina, “legally separated” is much different than a “legal separation” in some other states. “Legally Separated” in North Carolina means that you are living under separate roofs with the intent for that separation to remain permanent (i.e. not a limited “trial separation”). Being “legally separated” in North Carolina is not a “legal separation” as that term is used in other states. “Legally separated” in this state means essentially that the one-year waiting period for divorce has begun and that some financial issues related to divorce have kicked in (there are other legal impacts of being legally separated, ask a lawyer for a full explanation).
So, if you are separating, or legally separated in North Carolina, you typically do not need to report that separation to an employer-sponsored health plan. And, both spouses can remain on the employer policy until the actual date of the divorce.
That being said, every situation is different, so contact an attorney to determine whether and how being legally separated impacts you or your spouse’s eligibility for employer-sponsored health insurance.
Some couples can have productive conversations at the kitchen table and agree on how they want to handle the financial and co-parenting issues of their separation and divorce. And I am all for couples having these conversations as long as they are productive. I believe that the more couples are able to sort out on their own, the better for them, their families, our court system, and society in general.
These couples understandably wonder why they need an attorney if they can figure things out on their own. It is a reasonable question.
There are many reasons, but I want to focus on one in this post: the difference between what you think you have agreed to, and what you have actually agreed to.
This came to mind while reading a blog post from a financial planner about pension divisions (I know, this sounds insanely boring).
This blog points out that “Even in amicable separations, and situations in which spouses largely agree conceptually on how assets should be divided, it’s not uncommon for there to be an innocent misunderstanding at the time that, once more thoroughly understood in the future, creates animosity or financial hardship. And, in some cases, both.”
The author frames this situation as the “We agree, but don’t really understand what we’ve just agreed upon” scenario.
This is a very real risk. Clients (both collaborative divorce clients and non-collaborative divorce clients) frequently come to me with at least a partial outline of some agreed big-picture terms. However, part of my job is to dig into the details of those agreements because I am responsible for taking these conceptual agreements and turning them into fleshed-out enforceable legal agreements. And once I start asking about details, and explaining the consequences of the conceptual agreements, clients frequently realize that they did not actually understand what they were agreeing to do.
In my mind, one of the most valuable services I provide to clients is helping them to truly understand their conceptual agreements, and to help them tweak them where necessary to reach a full and detailed agreement that is legally enforceable.
Some clients are frustrated to learn that there is more work to be done and that their conceptual agreements are not the end of the journey. I certainly understand that. After all, even the conceptual agreements take energy and those conversations can be emotionally draining. It is just one of the frustrating parts of separation and divorce.
But, without that work, the innocent misunderstandings that come with conceptual agreements become the seeds of the animosity and financial hardship that everyone is trying to avoid.
So, to answer the question “We know what we want to do. Why do we need lawyers?”: The answer is that a good lawyer is there to help you truly understand what you have agreed to conceptually and find and address the innocent misunderstandings before they create animosity and financial hardship down the road.
Divorce involves loss. That is an inescapable reality of the changes that come with the end of a marriage.
Human nature is to weigh losses heavier than gains. We have a natural psychological tendency to focus on what we may lose, as opposed to what we stand to gain.
But, when assessing your divorce options, it makes sense to not just think about losses that may be realized, but also think about losses that may be avoided.
When weighing and considering the outcome of your divorce, in addition to whatever you feel you may have gained or lost, the losses avoided must be given significant weight as well. The amount of loss in your divorce is largely up to you and your spouse. Some loss is unavoidable: the cost of two homes is higher than for one, future plans may change, a parent may have less overall time to spend with children when parents live in two homes. But, there are many losses that can be avoided if a divorce is handled well. Legal fees can be held in check, the familial relationships can be salvaged, disruptions to children’s lives can be minimized, time lost at work and the impact on careers can be minimized, church and community families can be maintained, homes can be saved, traditions maintained; the list goes on.
Another way of saying this is that whatever may be lost in a divorce, things are also saved. The question for anyone facing a divorce is what do you want to save and how can you save it? How can you save as many of the good things as possible?
If you find yourself facing the prospect of a separation and divorce, you will automatically think of the losses that you fear coming. But it is also wise to think of the losses that can be avoided, and how you can best avoid them. In my experience, perhaps the biggest difference between a “good” divorce and a “bad” divorce is that the good divorces avoid far more losses, and save more of the good things than the bad ones.
The best way that I know to avoid unnecessary losses in divorce is to manage conflict instead of fueling it, to refrain from emotional behaviors instead of giving in to the urge, to jointly problem solve instead of blaming, threatening and manipulating, to retain your decision making authority instead of handing it over to the government, and to jointly work to insulate and nurture your children instead of fighting over them like property.
That is not easy, and it may not be for every client and family. But it is possible, and in my practice, it is the rule instead of the exception. All it takes are two clients who are committed to avoiding unnecessary losses, attorneys who know how to help them, and a well-designed process.
One issue that comes up in every marriage and every divorce is money. How to make it? How much to make? How to spend it? How much to spend? What to sacrifice in order to get money and what is not worth sacrificing for more money?
The different ways that spouses answer these questions in their own heads often reveal themselves in arguments, marriage counseling or, in a worst-case scenario, a divorce negotiation. Unfortunately, we are not very good at seeing, understanding, or talking about our own individual views of money. So, we don’t talk about it with our spouse, or, we only talk about it in the form of a fight.
Rather than wait until a fight or a divorce, you can get an insight into your views about money now, and start a conversation with your spouse about it while you’re both calm and nobody is worked up.
The best quick tool that I know of to help you understand your (and your spouse’s) views about money are the Klontz Money Script Inventory and the Klontz Money Behavior Inventory.
These were developed by two psychologists that are also Certified Financial Planners. The inventory is designed to help you gain insight into how you think about money. If you and your spouse both take it then you can see some areas where you think and behave differently regarding money. You can read more about it and what your results may mean as well.
There is no panacea for having different views of money. But, knowing how you differ as spouses is a huge first step to managing your differing views and not letting those differences negatively impact your marriage.
In a worst case scenario, taking these inventories in the early stages of your divorce process will help you and your attorney understand how you approach money issues. That, in turn, allows you to find a divorce solution that better fits your money values in terms of property division, alimony and child support.
There is no downside (that I can think of) to understanding more about how you as an individual and your spouse think about money. And, the upside is that it can head off unnecessary arguments, maybe save your marriage, and, at the very least, help you have a better divorce outcome.
At least in North Carolina, alimony (including post-separation support (PSS)) is one of the least predictable outcomes in family law. There are 15 factors listed in the alimony statute that must be considered, plus a catch all factor. Once those factors have been considered, a family court judge must make an award (or not) that she finds to be “equitable”. “Equitable” is legalese for “fair”.
In divorce, time is money. Most divorce attorneys charge by 6 minute increments. That means that you are going to pay anywhere from $2.50 to $7.50 or more per minute for your divorce attorney’s work.
I would be greatly concerned about using my attorney efficiently. I would want more money going into my pocket, my kids’ college, or my retirement than to attorneys.
To be sure, skimping on an attorney for a divorce is not a good idea. That can lead to very expensive mistakes. But, paying more than necessary for your attorney can be avoided.
In my experience, the number one factor in the legal fees in a divorce is not the hourly rate of an attorney. Rather, it is the amount of time that a client pays an attorney to do things other than help resolve their case.
If you are diligent enough to have saved for retirement, then dividing retirement assets can be one of the trickiest parts of divorce planning. There are countless types of retirement plans, federal and state laws that apply to different kinds of plans and tax consequences that must be considered in dividing retirement accounts.
But, perhaps more important is the overall question of whether each spouse will be adequately provisioned in retirement.
It is not uncommon for one spouse to have substantially more retirement savings than the other. This is especially the case where one spouse has worked throughout the marriage while the other has not.
In some cases the spouse with the greater retirement savings resists dividing the funds. The most common reasoning for this is “I spent x years working my tail off to get that retirement. I shouldn’t have to give any of it away.” I think we can all understand why someone might feel that way. After all, sometimes retirement savings feel like the only tangible reward that you’ve got to show for decades on the hamster wheel.
Nonetheless, there is at least one important fact to consider if you have kids and your spouse is low on retirement savings: If your spouse cannot afford to support themselves in retirement, then it may well fall to your children to support them.
Children are not legally required to financially provide for parents. But, many adult children feel some obligation to financially support parents who cannot provide for themselves. At the very least it can be a significant stressor to know that a parent is not financially secure, or cannot afford the care that they need.
You may not feel a need to ensure that your ex-spouse is financially secure in retirement. You may or may not be legally required to do it. But, when considering your options and what’s important to you, you may want to take a longer view of the situation. If you and your spouse are not able to secure retirement incomes down the road, then you may simply be passing the buck to your children.
Obviously, the facts of any given case will dictate whether this is an issue. But, the point is that a decision to not provide for your or an ex-spouse’s retirement in some way can negatively impact your children. And, that is a ripple effect of divorce that few people want to create.
Many people want to negotiate their separation and divorce without using an attorney. The reasons typically revolve around saving money and/or the fear of evil attorneys creating an unnecessary fight.
I am all for people resolving their own disputes whenever possible. But, in divorce, there are traps waiting for people who want to do it themselves. Here is a list of 10 the most common traps:
1. Failing to account for capital gains taxes
A lot of people just divide up assets or debts without regard to this issue. This can provide a nasty surprise if capital gains taxes reduce the value of the assets that seemed “equal” when you agreed on them.
2. Failing to structure financial terms to avoid taxes
Giving money or assets to your ex-spouse can bring on tax liability. Withdrawing retirement funds can trigger tax liability. Divorce situations can be excluded from some kinds of taxes, but only if handled correctly.
3. Retirement account division
Dividing these accounts is complicated. There are federal, state and/or tax laws that must be satisfied to avoid bad surprises down the road. Special orders from a court may be required to divide up a retirement account. Also, planning for what happens if the owner of the retirement account dies after separation, but before the account is divided is complex, but crucial.
4. Small business and family business ownership
Small business and family owned businesses present special considerations for a divorcing family. Failing to properly address these issues can lead to future problems with ownership, liability on business debts and other issues impacting the business.
5. Planning for income changes in support obligations
I have talked to many people who tell me that they handled their own separation agreement and agreed to pay “x” dollars a month but now cannot pay it because they lost a job or took a pay cut. This is a great way to end up in court and financial trouble.
6. Agreeing to obligations that are not legally required
You may inadvertently agree to do things that no court could require.
7. Agreeing to things that are not enforceable
You may depend on your spouse’s agreement to do something only to later discover that you cannot actually require them to do it under the law of your state.
8. Failing to formalize your agreements properly
Creating a legally enforceable divorce settlement agreement in North Carolina is not as simple as a handshake or even a just a written signed agreement. If it is not done correctly, your agreements may fail.
9. Agreeing to numbers without budgeting or planning
Too many people agree to financial arrangements without having the slightest idea of how those arrangements play out long term, or sometimes even short term.
10. Failing to structure spousal support for tax purposes
There are very specific tax laws and state laws that apply to spousal support payments. Failing to structure spousal support payments appropriately can lead to surprising tax and legal ramifications years after you thought your divorce was put to bed.
If you are facing separation or divorce, then consider consulting a qualified family law attorney before you finalize an agreement. An ounce of prevention is often worth a pound of cure.
“How Do I Know if I’m Making the Right Decision?”
This is one of the most common dilemmas that people face in negotiating divorce, custody, alimony, equitable distribution and child support issues. In fact, the fear of making the wrong decision can paralyze people and prevent them from making any decisions.
In my last blog post, I talked about the negative impact of indecision. The fear of making the wrong decision is one powerful fear that feeds indecision.
However, in a divorce context or any other, making decisions in the face of uncertainty it is critical.
The fact of the matter is that there are poor, better and best decisions. But, there are rarely right and wrong decisions. There are great decisions that turn out poorly and terrible decisions that work out well. No one has a crystal ball, and even the best analysis and prediction can be laid waste by future events. Life, as they say, is uncertain.
Nonetheless, decisions must be made. The best way that I know to handle the discomfort of making difficult decisions in the face of uncertain outcomes is from the book Difficult Conversations by Douglas Stone, Bruce Patton and Sheila Heen of the Harvard Negotiation Project.
These authors give the following advice:
“Don’t spend your time looking for the one right answer about what to do. It’s not only a useless standard, it’s crippling. Instead, hold as your goal to think clearly as you take on the task of making a considered choice. That is as good as any of us can do.”
That is tremendous advice in both divorce and life.
Many divorce clients want their attorney to fight for them. That can mean a lot of things. In my experience what most people really want is an attorney that will help them obtain the best possible outcome. “Fight” is just an easy one-word way of saying that.
But, if your attorney is fighting for you, they have to fight against something. The question then becomes: What are you fighting against? How do you define your “enemy”?
In the traditional, adversarial, litigation based divorce process the enemy is typically defined as your spouse. Therefore, you fight your spouse. Your time, money, energy and emotion are spent fighting your spouse. And, your spouse’s time, money, energy and emotion are spent fighting you. (And what happens to the kids in the midst of all that fighting?)
The adversarial way of handling a divorce assumes that dumping all of these resources into fighting each other will produce a “fair” result. And, fair generally means equally bad for both of you. In fact, divorce attorneys love to say, “A good result is one that everybody is equally unhappy with.”
In contrast, the Collaborative Divorce Process does not make your spouse the enemy. Instead, for each spouse, the enemy is the set of challenges and practical issues that can make divorce so difficult for you and your family.
Instead of using your resources to fight against the mother or father of your children, collaborative divorces use the combined resources of both spouses to fight against the practical problems that frequently come with divorce. These issues (and others) are most often the real enemies to a divorcing couple:
- Insufficient money to support two households
- Emotions that derail effective decision making
- Practical difficulties in co-parenting children from two households
- Differing parenting styles in two households
- Complicated valuation issues for assets or debts
- Overwhelming debt that cripples each party financially
- Blending new relationships into the family
- Paying for college and meeting financial needs of family
- Planning for retirement while meeting financial needs of family
The adversarial process most often produces a result that is equally bad for each party without solving any of these problems.
The Collaborative Process most often produces a result that is beneficial for both parties (and their kids) and solves many, if not all, of the issues in that list.
In divorce, the reality is that the enemy is not really your spouse; the enemy is the set of problems that come with divorcing your spouse. So, it makes sense to choose a process that recognizes the real enemy and focuses your resources on defeating those issues, instead of trying to defeat each other. Collaborative Divorce is that process.
(Special thanks to Michael Kothakota of Wolfbridge Financial, a combat veteran, for introducing the concept of “defining the enemy” to me.)