New Article Explaining Collaborative Divorce

I am happy to announce that co-author Michael Kothakota and I have published our latest article on Collaborative Divorce in Resolved:  Journal of Alternative Dispute Resolution.  

Interdisciplinary Collaborative Divorce:  A Process for Effective Dispute Resolution is intended to provide a brief but thorough explanation of the interdisciplinary collaborative divorce process for both practitioners and clients.  

Each professional and prospective client must determine whether the ICD process is appropriate for their situation.  But, our hope is that this article will provide an introduction to the process and help people make more informed decisions.

If you have questions about collaborative divorce after reading the article, then please do not hesitate to contact me to discuss the process and whether it may be right for your family or your practice.  

The Importance of Expert Tax Advice in Divorce


Most people who get divorced do so without the benefit of a tax expert.  

They get tax information and/or advice from their divorce attorney.  However, as this Forbes article points out, divorce lawyers are not the best tax advisors.

In fact, most divorce lawyers go out of their way to disclaim any liability for tax advice in separation agreements and fee agreements.  

So, if you are getting a divorce, and you can’t rely on a divorce attorney for expert tax advice, what do you do? 

Collaborative attorneys figured this out a long time ago.  In a collaborative divorce case, expert tax advice comes from the financial neutral. 

The financial neutral provides unbiased neutral information and advice about tax issues that relate to divorce.  That way, both parties get the same information at the same time.  And, they are not getting in unnecessary conflicts due to differing tax advice from either their attorneys or their own individual tax advisors.  

And here’s the best part about financial neutrals in collaborative divorces:  A good piece of tax advice can save tens of thousands, if not more, for the couple.  One small piece of information can have a huge impact on the financial futures of both clients. 

On the other hand, the absence of that information can have a huge negative impact on both clients.  

Tax issues are another big reason to take advantage of the collaborative process and the financial neutrals that help clients in the process.

Unpredictable Alimony Awards

Alimony has always been of the most unpredictable issues for spouses and attorneys.  The chair of the Family Law Section of the American Bar Association indicated in a recent article “Divorce law is one of the most discretion filled areas of the law…”

In many states, including North Carolina, judges have wide discretion in awarding alimony, both in amount and duration.  Compare this to child support awards that are largely determined by a formula in North Carolina.

A recent article in the February 2012 issue of the American Bar Association’s Journal highlights national efforts to create more predictable alimony awards. 

The article states, “Many agree that divorcing spouses deserve more predictable outcomes” and that the current alimony process in court “has been attacked as antiquated, unbalanced and unfair.”

Here are some of the proposals and efforts that have been undertaken by other states or legal groups according to the article:

  • In 2011 Massachusetts passed the Alimony Reform Act.  The new law created a formula for calculating alimony awards.  The law also ends alimony when the paying party reaches retirement.  Further there is now a 12-year limit on alimony payments in that state.
  • Oklahoma is trying to reduce a party’s ability to get military retirement pay as alimony.
  • Rhode Island generally limits alimony payments to five years.
  • In 2004, a Florida lobbying group tried to end alimony in that state forever.
  • The American Academy of Matrimonial lawyers suggests the following formula:
    • 30% of the paying party’s gross income minus 20% of the receiving party’s gross income
    • The receiving party should not receive more than 40% of the couples’ total combined gross income
    • For example: If one spouse makes $100,000 and the other makes $50,000, the numbers look like this:  $100,000 x 30% = $30,0000; $30,000 minus $50,000 x 20% ($10,000) = $20,000.  So, the receiving spouse would get $20,000 a year in alimony.
    • And, the duration would be calculated by multiplying the length of the marriage by a fraction.

These efforts clearly indicate that there is a big problem for divorcing couples using the courts to determine alimony awards.  

Their outcomes are highly discretionary and therefore very difficult to predict. Of course, couples always have the option to opt out of the unpredictable alimony system currently in place. They are free to resolve alimony issues in whatever way they choose in processes such as collaborative divorce and mediation. 

As the current alimony system comes under further attack, wise couples may elect to do just that. 

 

 

Why You May Want a Pre-Nup

Pre-nuptial (also “pre-marital”) agreements are what everybody calls  “pre-nups”. 

Pre-nups have a mixed reputation in our society.  Some people see them as smart protection from gold digging prospective spouses.  Others seem them as cold-hearted unromantic acts that stand in stark contrast to what you’re supposed to be feeling before you get married.

But, most people don’t know about another more positive use of a pre-nup:  An antidote to an ugly divorce™. 

You and your future spouse can create a pre-nup in which you agree to try to avoid an ugly divorce if the marriage doesn’t last forever.

You can sign a pre-nup in which you both agree to attempt to resolve any future divorce, custody, child support, alimony, and property division issues through collaborative divorce or mediation before you go to court. 

This kind of pre-nup doesn’t determine the terms your ultimate resolution.  You don’t have to figure it all out ahead of time.  It simply determines the first process that you’ll use to figure out the details if things don’t work out.

A pre-nup cannot prevent a court from ordering financial support to a child.  And, in North Carolina, a court always has the right to enter an order for the custody and support of a child if and when the court finds it necessary.

However, North Carolina courts will enforce pre-nups under current law.

There are many potential benefits of a pre-nup that requires a couple to attempt a collaborative divorce or mediation before going to divorce court.  What are they? 

EMOTIONAL BENEFITS:  From an emotional standpoint, you would be committing to each other that even in the unfortunate event that things don’t work out, you do not want to put each other through the ringer in a divorce. 

Some people have are afraid to get married.  Many of those people have a fear of divorce, instead of a fear of marriage.  And that fear is usually based on their understanding of what a bad divorce looks like.  Maybe they have been a party to a bad divorce as either a spouse or child. 

A pre-nup that requires you to first try to handle a subsequent potential divorce with dignity, grace and respect may take a lot of the fear of divorce away.   And, that, in turn, may take some of the fear of marriage away.  And, less fear seems like a very good thing for the health of any marriage. 

FINANCIAL BENEFITS:  Financially, this kind of pre-nup commits you to processes that seek to preserve your financial well being in the divorce process.  Both collaborative divorce and mediation are based on the idea that people don’t want to spend their life’s savings on divorce attorneys and court battles.

LEGAL BENEFITS:  Legally, collaborative divorce and mediation open an almost limitless range of options for resolving divorce issues that are frequently not available in court.  These options often serve families far better than the limited options that a judge faces. 

Nobody wants to think about divorce when they are thinking about getting married.  But, we do it anyway.   Rather than letting it be a scary idea that sits in the back of your mind, you can plan for that “what-if” before you get married.

After all, agreeing in a pre-nup not to go to war in the event of a future divorce is an act of love in itself.  And, it may be a good step towards ensuring that your pre-nup never matters.  

Immunizing Your Marriage Against Divorce

In my experience, differing and unmet expectations are often the genesis for divorces.

Typically, tension develops because the husband and wife entered the marriage with unspoken but differing expectations about the issues they will confront after the wedding.

Those differing expectations can create conflict.  Unresolved conflict creates rifts in marriages.  Rifts create divorces.

One way to immunize your marriage against divorce is to learn to resolve conflict effectively.  That is something that typically takes time to learn and very few people possess that skill on the day they are married. 

Another great way to help immunize your marriage against divorce is to identify and address your differing expectations before the wedding.

How do you do this?  Pre-marital counseling is a great tool for identifying potential future conflicts. 

But, if pre-marital counseling is not your cup of tea, there are tremendous benefits to simply having a conversation with your future spouse about some typical issues that I have seen come up in marriages that end in divorce, such as:

– Who will work and how much will they work?  What kind of work/life balance do you expect the other person to maintain?

– How much money do you expect to make as a couple?

Ÿ – What kind of lifestyle do you each expect?

– Will one of you will stay home if you have kids?

– Do you want kids?  How many?

Ÿ – Do you prefer to be financially conservative (lots of saving, low risk moves) or more daring (lower savings, higher risk moves)?

– What kind of parenting styles do you anticipate?

– What are appropriate discipline techniques for your family?

– Where will you spend holidays and who else will be there?

– How involved will your in-laws and extended families be in your lives?

– How will you share the chores of the household?  Will you share them at all?  If not, who is going to do them?

– How clean do you expect your house to be on a regular basis? 

– What kinds of things do you expect to be able to spend money on?

– Who will handle the family finances?  

– Will the family follow a budget? 

– Do you believe in having debt, or are you debt averse?

All of these issues and more can be sources of friction in a marriage if not addressed early on.  Every couple has their own points of conflict.

I have found that many people make assumptions about their future spouse’s feelings on these topics; only to later find out they were wrong.  There’s an old saying about what happens when you “assume”, and it holds true in marriage as well.  Don’t assume what your future spouse thinks about something; find out.

Identifying and discussing these issues early on may not be comfortable. But those conversations will help prevent future conflict and therefore immunize your marriage against divorce down the road.  And that is a truly worthy goal.

Opportunity Costs in Divorce

One issue that people frequently ignore in their divorce is opportunity cost

Opportunity cost is defined by my computer as “the loss of potential gain from other alternatives when one alternative is chosen.”

That’s a fancy way of saying that when you are doing one thing you are giving up the potential benefits of another.   It means that if you go west, then you give up whatever good things you would have found by going north, south or east.

So, what does that have to do with divorce? 

In divorce, people make choices from the day someone says that they want out until the divorce, and frequently far past that point.  They make choices about what to do with their energy, peace of mind, money, kids and stuff. The choose how to behave towards the soon to be ex-spouse.

In most cases, clients give some thought to the impact of their choice; i.e. “when I do this, the result will be ‘x’.” They think about the effect that will be brought about by their decision. 

What they generally fail to consider is the how that compares to the other possible decisions that they could make.  That is, they spend a lot of time thinking about what they’ll find if they go one direction, but very little time thinking about what they give up by not going another. 

For instance, when people choose to use an adversarial process for their divorce, they don’t give much thought to the benefits of non-adversarial processes that they are giving up.  They see what they hope to gain by duking it out, but they fail to see what the have given up. 

In many cases, people fail to see that choosing to fight about something is also a choice to forgo the peace of mind, free time or money that they could enjoy if they were to choose another way to handle their divorce. 

I frequently ask clients to consider what they could do with their time, energy and money if they resolved their case quickly and did not have to deal with their divorce anymore.  That gets them to think about the opportunity costs of the decision they are considering. 

Sometimes, it makes sense to continue the tough work of negotiation or a court battle.  But, that decision should only be made once the client considers the opportunity cost of that decision.

If you are considering a divorce, you may want to spend some time considering what you would do with the time, money, peace of mind and energy you can save by choosing to resolve your case through collaborative divorce, mediation or other non-adversarial processes.  

Is Alimony Reform Headed to North Carolina?

As described in this article, Massachusetts has recently revised its alimony laws.

The lawmakers in that state established stricter guidelines as to the length of alimony payments, among other revisions. 

Could Massachusetts’s reforms begin a trend towards alimony law reforms across the United States, and more importantly for us, in North Carolina?

Currently, North Carolina has no guidelines that directly tie an alimony award to the length of a marriage.  Rather, the alimony statute lists “the duration of the marriage” as one of 16 factors that a court must consider in making an alimony decision.  The statute is silent as to the weight of each of the 16 factors. 

In practice, North Carolina judges have wide discretion in making alimony decisions.  With so many factors to consider and the freedom to give more weight to some factors and devalue others, alimony decisions can vary widely from judge to judge and from county to county.

Many North Carolina judges use a “needs and income” approach to alimony.  That means that a judge determines what income is available to the spouses, and then determines the financial needs (not wants) for each party.   After that, the judge can use the 16 factors in the statute to settle on a number that they believe is reasonable.

It appears that Massachusetts’s judges have retained some discretion on making alimony decisions under their new laws, but now have stricter boundaries for their decisions.

The question is whether other states, including North Carolina, will follow Massachusetts’s lead and move toward more defined rules for alimony decisions in the future. 

 

Money Panic in Divorce

One of the hardest moments for a couple in the collaborative divorce process or mediation is when they see that their projected budgets exceed their monthly income.  In my office that moment comes when we are all looking at the budget form on a large computer monitor.  The last number is plugged into the form and the totals appear at the bottom.  Then…

Silence.  Or moans.  Sometimes tears.  For the really loose couples, laughter.

This moment taps into what can be a couples’ deepest fears about whether they and/or their children are going to be OK. 

Here is the interesting thing that I’ve found:  This moment is the same for most people, no matter how much money they make.

Couples that make $500,000 a year (or more) typically have the same reaction as the couples that make $50,000 a year (or less).  Almost invariably, their projected budgets exceed their incomes.

And, almost invariably, it works out.  Through some combination of raising incomes, lowering expenses or using assets, couples find solutions to their financial and cash flow issues.

The point of this is that if you are facing a separation or a divorce, try not to let the cash flow and financial issues panic you.  Understand that the fears about money are part of the process. There is almost always a solution out there, no matter your income level.  You may just need to work harder to find it.

Divorce: The Danger of Learning From Others

Learning from the experience of others is a double-edged sword.  You can avoid a lot of mistakes by watching others make them first.  But, you can also fall into a lot of mistakes by assuming that your experiences will be like someone else’s. 

Case in point:  I know someone whose mother had a heart attack decades ago.  While hospitalized for the heart attack, her mother developed a serious complication.  The doctors caught it pretty late and some extensive tissue removal was required.  It was traumatic for my friend and the mother. 

My friend learned a lot from that experience.  Unfortunately, what she “learned” was that doctors cannot be trusted to take care of her.  What she took away from her mother’s experience was that she was better off staying away from doctors because she would probably end up worse off for trusting them.

This has, in turn, led to her to avoid doctors for decades.  She is now suffering from serious medical conditions that could perhaps have been avoided with regular care from a doctor.  Her quality of life has been seriously impacted.

She made the mistake of watching her mother’s experience and assuming that her experiences with doctors would be the same.

This same dynamic is endemic to divorce.  Many, if not most people going through a divorce will reach out to friends and family who have been through a divorce.  In many ways, this is a great thing.  It can provide support and succor in a very tough time.

Unfortunately, it usually comes with being given the gory details of the friends’ divorces.  And that can lead to the same unhealthy learning that affects my friend.

Many clients “learn” from their friends that divorce is a war.  They have learned that if you don’t strike first, then you will somehow suffer.  They learn that lawyers and ex-spouses are dangerous, ill intentioned creatures that must be combated at every turn.  They learn a false dichotomy of “fight or die”. 

They then assume that their divorce experience has to be like their friends’.   This causes more distress, worry, anxiety, fear, unnecessary aggression, cost and destruction than is warranted. 

Just like my friend, a divorcing spouse can find himself or herself suffering the affects of this assumption for a long time.

While some divorces certainly become very ugly and destructive affairs, typically that happens because the parties have unwittingly chosen that kind of divorce.  They may not have expressly agreed to have an ugly divorce.  But, the indelicate handling of their divorce has made the decision for them.

In my friend’s situation, the unseen reality has always been that doctors, in fact, provide a great deal of help to people.  Her mother’s experience was an anomaly. 

For divorcing couples, the reality is that dignified, respectful and even transformative divorces are common.  They are free to choose to not have an ugly, destructive divorce.  But, it requires a choice.

The bottom line is this:  Don’t assume that your divorce has to be like someone else’s.  You have options.  Your family and your marriage are unique.  Therefore, your divorce should be unique as well.  

Divorce Insurance, Pre-Nups and Co-habitation Agreements in North Carolina

As this recent New York Times article points out, some people are choosing to begin their marriage with the (potential) end in mind.

Pre-nuptial (a/k/a pre-marital) agreements have been around for a long time.  The new trend is that couples that cannot, or do not want to get married are choosing to put their understanding about how their relationship will work and how it will end in writing up front. 

 In North Carolina, same sex couples cannot be legally married.  So, a pre-marital agreement is not an option. Given that the number of same sex couples in North Carolina has risen 68% since 2000, cohabitation agreements may become far more popular.

For heterosexual couples that want to live together but choose not to marry, a pre-marital agreement is likewise useless.

But, both kinds of couples have the option of executing a co-habitation agreement. 

This kind of agreement can set forth the understanding of how the relationship will operate.  For instance, the terms can state that one partner will stay at home to raise children, while the other is expected to earn the family funds at work.  Or, it can state that both parties will work outside of the home. The agreement can state how many children each party expects to have or adopt, how many vacations the couple will take and even whether one of the partners is expected to cook meals (I have actually seen that).

More commonly, these co-habitation agreements pre-arrange how (but not if) the relationship will end.  The terms often set forth how assets and debts of the relationship will be handled in the event of a break-up.  They can dictate what process the parties will use to determine these issues in the event of the break-up (Collaborative Law, mediation, etc…). 

Some see these agreements as cold or anathema to romance. But many couples are comforted to know that they have agreed not to drag each other through a nasty court battle if things don’t work out.  And, having a discussion about big important issues and expectations before entering a long-term relationship is a good idea, even if it does not lead to an agreement. 

As for divorce insurance, one company (in North Carolina of all places) thinks it’s a great idea. 

From my point of view, the best insurance for your marriage is to discuss the big issues before you get married, and then commit to really truly communicating during the relationship.  Discussing the terms of a pre-nuptial agreement encourages that conversation far more than simply buying an insurance policy.