In my last post, I set out 10 basic facts about retirement accounts in divorce in North Carolina.
One of those tips mentioned the taxes and penalties that are incurred upon an early withdrawal of retirement funds. This article from Kiplingers details exactly how this came back to bite one divorcing teacher.
Needless to say withdrawing funds from a 401k or other retirement vehicle needs to be handled very carefully, and with the advice of an attorney or financial professional, if not both. As the article states, there are frequently alternative means of obtaining needed liquid funds that have less drastic consequences.
Ideally, you and your spouse can agree to discuss the division use of retirement funds in a joint problem solving legal process that takes into account your individual goals and needs.
But, even if your divorce becomes combative, and you need funds from your retirement account to pay legal fees or living expenses, proceed with extreme caution and explore your options before raiding a retirement account.
One item that people frequently worry about most when they find out they are getting divorced is their 401k. The prospect of sharing their retirement savings, whether in a 401k, IRA, pension, or other retirement accounts can cause a lot of anxiety. I have always found that the best way to alleviate anxiety in divorce is with accurate information. So, here are some basics of what you can expect regarding your 401k if you are getting divorced.
- At least in North Carolina, only the marital portion of the retirement account can be divvied up by a court. Typically, that is the portion of the account that accrued between the date of marriage and date of separation.
- Many, if not most retirement accounts can only be divided by way of a special court order called a “Domestic Relations Order”.
- Dividing retirement accounts without a court order or a properly drafted and executed separation agreement can result in expensive penalties and taxation on the withdrawals to the account owner.
- Most 401k companies will not allow you to give your spouse specific parts, shares, or assets of a 401k. For example, it is usually impossible to give your spouse just the Apple stock out of your 401k.
- There are big differences between Roth and non-Roth retirement accounts in taxation when the funds are withdrawn later.
- Some retirement accounts can be divided such that your spouse gets their own separate account. But, some can only be divided such that your spouse gets a portion of your payment once you start receiving benefits.
- Annuities are difficult to divide and therefore payments from the annuities may need to be shared or divided when the payments begin.
- When dividing pensions, there are important and tricky survivor benefits that need to be considered and addressed.
- Some retirement plans have online services for researching and drafting domestic relations orders to divide the accounts.
- The “coverture fraction” or “marital coverture fraction” is the most common technique for determining what part of a “defined benefit” (e.g. pension) plan can be divided. This is the fraction representing the years of the marriage during which you earned the benefit, divided by the total years you earned the benefit. If you earned the entire benefit while you were married, then the fraction is 1/1. If you were not married for the entire time you earned the benefit, then the fraction will be less than 1.
Dealing with retirement accounts in divorce can be complicated and the details of each plan and case are important. But understanding some of the basics can help reduce anxiety in the early stages. Optimizing retirement outcomes for both parties in divorce is best done in a joint problem solving divorce process where all of the options can be discussed.
The cost of divorce is top of mind for almost every client that I serve. In my experience the amount of income and net worth have very little impact on how much someone worries about this issue.
The reality is that many divorces involve complex emotional, financial, and legal issues and therefore take some time to problem solve to resolution. So, it is very important that clients get as much value from what they pay for their divorce process as possible.
One of the best ways that attorneys can add value to a client’s use of resources on their divorce is to help them avoid future expenditures on legal issues. When I was litigating adversarial family law cases in court, clients almost always grossly underestimated the amount that they would spend in the years after their first round of court hearings. This was because the adversarial nature of the court process planted seeds of anger, resentment, distrust, and vindictiveness that I knew would sprout into fields of future conflict. And, this future conflict often costs multiples of the amount spent in the initial round of conflict.
The best way to prevent this, in my experience, is to resolve the first round of conflict in a way that prevents, or at least greatly reduces the likelihood of future adversarial conflict that would require legal fees. That is essentially the main goal of Collaborative Law.
While this is a core tenet of my practice, it came to mind most recently while reading a study on shared parenting which stated:
“Shared custody – like any other parenting arrangement – can work well or poorly depending on a range of factors. Moreover…life changes may eventually present new challenges, and helping parents understand and be more prepared for future issues that would need to be addressed if they are to continue sharing parenting could prevent future difficulties.” The Growth in Shared Custody in the United States: Patterns and Implications, Meyer, D, Cancian, M., and Cook, S. Family Court Review, V. 55, No. 4, October 2017
I have previously discussed the difference between answers and solutions in legal matters. Answers give you an immediate instruction of what you will do now. Solutions give you not only an immediate answer, but a plan and process for handling the “future issues” that invariably come up for families after their separation agreement is signed.
In a collaborative divorce, communication patterns are identified, modified to be more productive, and new communication and conflict resolution skills are learned. These underlying issues are rarely addressed in a court proceeding or traditional negotiation. So, while courts can give families an immediate answer, they are far less able to provide the tools and solutions that will help avoid future legal fees.
The aim is that, when future issues arise, the parties feel competent and confident in finding their own solution instead of calling an attorney to re-ignite the adversarial process. If that doesn’t work, they can enlist their collaborative attorneys, financial neutral, or child specialist to help them over a rough spot without falling into the endless pattern of litigation or incurring high legal fees. Those fees saved are the same as extra money earned.
As the saying goes, the only constant is change. Changes will happen after your separation agreement is signed and your divorce is finalized. In order to get the most value from your time and money spent, choose a process that will help both of you handle future issues more productively down the road so that you won’t need to involve courts or attorneys for the “future issues”.
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.
Most of us have heard of the “fight, flight, or freeze” responses that we are pre-programmed to experience in the face of a threat. This is often attributed to the “reptilian” part of our brain or the part of our brains that evolved first and have the oldest programming.
Many people experience the news of divorce as a huge threat, if not an existential threat. So, it is only natural that an impending separation or divorce would trigger our reptilian brains and cause us to respond with a fight, flight, or freeze response.
The problem is that reptiles have really bad divorces. (If you can find one that had a reasonable divorce, I’d love to hear about it).
Engaging in a fight, flight, or freeze response upon learning that your spouse is considering ending the marriage prevents you from doing the most important thing you can do at that moment: Think.
Some people choose to fight immediately. This looks like someone seeking out the “toughest”, “meanest”, most “aggressive” divorce lawyer they can find. This move is protective in some ways, but also frequently leads to highly adversarial and needlessly expensive wars. The fight responses is often a self-fulfilling prophecy. You think there is going to be a fight, so you create one.
The flight response is no better. Some people simply avoid the situation and reality of what is happening. They refuse to engage an attorney or discuss things with their spouse. They simply try to pretend that it is not happening. This also leads to needless cost and fighting because their spouse has no choice but to ask a court to intervene when someone refuses to engage in the divorce process. The court is the only thing that can force someone to engage, or at least impose a high price for non-engagement.
Freezing is also a bad plan. Things begin to happen legally, financially, and practically when separation and divorce are on the horizon. If you cannot actively participate and shape those events then you may suffer negative consequences for a long time.
So, what is better than following our reptilian brain down one of these counterproductive paths? I believe that the best first move is to educate yourself. That does not have to mean talking to an attorney immediately. But, it should mean doing some research into your divorce process options, including negotiation, mediation, collaborative divorce, and even litigation. You can choose from many methods and processes to resolve your divorce issues. It is not a one size fits all area of the law. But, you should know which processes are a good fit for you, your spouse, your family, your resources, and your goals. A good lawyer can help you identify your goals, educate you about different methods, and help analyze what process is the best fit for you and your situation without pressuring you into the one they prefer.
Everyone will likely have some form of the fight, flight, or freeze response to the news of a divorce. It is only natural. But, that is not the part of your brain that should be making decisions in these important moments. The key to making sure the more evolved parts of your brain are in charge is to educate yourself on your options as quickly as you can.
Technology is making a lot of things easier these days. We have apps for almost everything, some more useful than others.
One way apps can be very useful is in helping families handle the practical challenges of co-parenting during and after a divorce.
This article lists seven apps specifically, though I’m not endorsing any of them individually. They all have pros and cons and it usually is a matter of client preference and matching what the app does to what a particular family needs from it.
But, I have seen many cases in which finding a user-friendly system for communication, scheduling, and even financial coordination goes a long way towards easing the burden and tension in a divorce.
Some clients use shared calendars, emails, phone calls, and texts. Some are overwhelmed by too much communication on too many platforms and need one app to capture it all for them. Collaborative clients are not generally worried about creating a record of communication, but other clients sometimes are and apps are a good way to do that in a way that is easier to introduce as evidence later.
These apps are also a good way to let other caretakers keep up with a busy family. These people include nannies, babysitters, step-parents, extended family, grandparents, etc… As a parent, I know that sometimes one small schedule change can generate a lot of different emails, texts, and phone calls to keep the people in the system on the same page. This usually becomes even more difficult when co-parenting from different homes.
I recommend that any parent going through a divorce investigate these apps and determine whether they can ease the burden for their family. In a transition that is never easy, and sometimes quite difficult, every little bit helps.
I expect that any experienced attorney, and especially any experienced divorce attorney, has experienced the difference between resolving the legal issues in a case and resolving the conflict in a case.
There is a big difference.
There are many family law cases in which a judge enters an order resolving the legal issues in a case, only to see that same family over and over again year after year. Each time that family appears the judge resolves the legal issue at issue and sends them away, only to have them re-appear again with some new (or not so new) legal issue. (These are the most lucrative clients for a family law attorney, by the way).
The reason for this revolving door on the courthouse is that while the legal issues in the case get resolved, the conflict does not. And in family law, it is the conflict that births the legal issues, not the other way around. However, the way the legal issues are handled often fuels the conflict, which in turn fuels more legal issues. It becomes a feedback loop.
This is perhaps the biggest limitation of the legal system when it comes to family conflict and divorce. A judge can issue orders to fill several court files, but the judge is almost powerless to resolve the underlying conflicts that fuel the legal issues. Judges can and do order family therapy in some cases to try to address the deeper dynamics at the root of the problem. But, that is not the norm, and it frequently comes so late in the game that real change is difficult.
To get to the root of the problem the conflict between parents or spouses needs to be addressed. Legal issues and problems are symptoms of the conflict. A judge can treat the symptoms, but it takes skilled lawyers and other professionals to work on a cure.
The legal profession as a whole, in my experience, has been narrowly focused on treating symptoms for family law clients instead of working on the root causes. In some ways that makes sense; lawyers are trained from law school through their early years of legal work to learn how to deal with legal problems. They are not trained to deal with anything deeper than the legal issue involved. And many lawyers have no desire to look behind the legal issues to the root of the conflict. It may come as a surprise that many lawyers, including family lawyers, are not comfortable with the emotions that are behind the curtain and don’t possess the skills to effectively handle them.
To be fair, some clients who hire a family law attorney have no interest in looking at the conflict either, and only want an attorney that will get the best legal outcome possible, regardless of collateral damage, or the feedback loop. Those attorneys don’t have the opportunity to address the conflict if their clients are not interested or able.
But, in my experience, most clients are open to addressing the actual conflict if they are shown in the early stages how that conflict is fueling the legal issues and that addressing the conflict will likely reduce or eliminate future legal problems. It is not easy or fun. It certainly takes maturity and self-discipline. But it is possible and it is possible in many more cases than it is offered.
If you are facing a divorce or family law issues, give some thought to whether you prefer to address a string of legal issues for years, or address the conflict upfront to avoid a string of legal issues for years. And find an attorney that is willing and able to help you do that.
As a society and culture, most of us view marriage as an unqualified positive. A hard thing. But a positive and beneficial thing.
This article from The Atlantic explores what people may be giving up when they get married. These losses can include extended support networks and opportunities to grow your other relationships and resources. These are not a necessary result of marriage, but as the article argues, they are frequent results.
The article touches on several points that I find fascinating, from the impact of same-sex marriage on the couples’ activity level in the LGBTQ community, to the pressure put on marriage by the loss of external support systems, to the potential benefits of marriage alternatives, to the question of whether marriage or stability is best for kids (and are they the same thing?).
I read a fair number of articles on family, culture, and society and this is one of the most thought-provoking I’ve read in a long while. I hope you find it useful as well.
Clients frequently ask me in a first consult how long a collaborative divorce process takes. And I spend a lot of time thinking about what makes cases so different and why some move faster than others.
One of the biggest variables I’ve found is the set of expectations that clients bring into a case.
Some clients bring in very few expectations about the end result. Some bring in great expectations about the ultimate outcome.
In my experience, clients have more efficient, faster, and less expensive processes when neither party brings unrealistic or rigid expectations to a divorce process. The reason is that an attorney has to spend a lot of time managing these expectations and working to create the flexibility and open-mindedness that produce the best and most efficient results. I can’t tell you how many times I’ve heard the phrase “managing client expectations” in seminars for family law attorneys.
The truth is that in all but the most extreme cases neither party can impose results or outcomes on the other, even (and maybe especially) in court. The vast majority of divorce and family law matters are resolved by mutual agreement. And mutual agreement obviously does not involve imposing outcomes on one another.
To be clear, expectations are different than hopes, concerns, and goals. Hopes, concerns, and goals are helpful and necessary for identifying what is important to a client. Rigid expectations are counterproductive because they reduce the ability to think creatively, brainstorm possible solutions, and work collaboratively to find the best solutions. Expectations often cause people to “anchor” on a particular strategy or outcome and develop tunnel vision. That causes people to miss important, beneficial, and helpful alternatives.
So, if you are seeking the most efficient, productive, and beneficial divorce negotiation process, then challenge yourself to avoid overly rigid or unrealistic expectations in the beginning. It will save you time, money, and stress in finding your family’s new path.
One of the saddest, but most common losses in divorce occurs when one or both spouses lose their communities as a result of the divorce (perhaps even sadder is when divorce causes children to lose their communities, but that is another story for another day).
These communities are diverse and take many forms. They are neighborhoods, social friendships, church families, extended families, work families, and in-laws among others. These communities can even be clients, referral sources, and other networks that are foundational to your livelihood.
We are all familiar with this, having either been the divorcing spouse feeling shunned or anxious about how those communities will receive us. Or, as the community member unsure of what to say, whether to reach out or how to navigate the waters of someone else’s divorce.
The question is how to prevent it. The answer lies largely in how the spouses handle their divorce.
In general, the less conflict involved in a divorce, the fewer community relationships suffer. Just as children are highly sensitive to the conflict in their family, communities are highly sensitive to conflict among its members.
Every divorce has conflict. For that matter, every happy marriage has conflict. The difference is that in cases where communities are lost, the conflict has spilled over to community members. A spouse is sharing negative information about the other with the community. Conflict erupts into arguments in front of friends or family. In seeking support from their communities, spouses sometimes “poison the well” for the other spouse, intentionally or not.
When conflict spills over to the community, the community rarely knows how to react appropriately. Most communities are not trained to manage that conflict. They don’t know how to support both spouses without shunning either of them.
The best way that I know to get through a divorce without losing your communities is to adopt a divorce process that can contain the conflict so that it does not spill over into other areas of your life.
While all divorce processes have pros and cons, some are designed to contain conflict, while others are designed (intentionally or not) to intensify conflict. For example, court processes are designed to contain conflict in the sense that it substitutes for vigilante justice. But an adversarial court process is not designed to avoid collateral damage to your communities. In fact, your communities are often dragged into court as witnesses. Mediation is designed to contain conflict before it spills over to trial. But mediation is most often highly leveraged based on strong-arm tactics, increasing the odds that the conflict spills over into communities, even if it avoids more courtroom time.
The best process for containing conflict, and preventing it from costing you your communities in divorce is the Collaborative Process. There are many reasons, but they all come back to the fact that experienced collaborative attorneys are extensively trained and committed to handle conflict, even highly emotional conflict, productively, by de-escalating it and channeling that energy it into problem-solving without becoming adversarial with each other or the clients.
If you are facing a divorce, then give some thought to preserving your communities, and how to do that. Give some thought to the collaborative process.