Divorce Dollars

Akeela Davis

Description

At least 40 percent of all new marriages today will end in divorce. The financial consequences of divorce can be traumatic. Many people who get divorced are left with little money, no income, and no credit rating. In some cases, if one partner looked after all the family’s finances, the other partner is left unprepared and overwhelmed by the financial consequences of divorce. Divorce Dollars is a complete guide to financial planning, demonstrating in a step-by-step manner how to overcome the financial challenges of divorce and lead a financially healthy life. The book addresses everything from dividing the assets to retirement planning. By using examples of real people, Akeela Davis demonstrates how everyone can handle the financial challenges of divorce using careful planning and money smarts.
NOTICE ix
INTRODUCTION xiii
1 MARRIAGE, FINANCE, AND DIVORCE 1
Spending Profiles 2
Savers 2
Spenders 2
Savers, spenders, and conflict 3
Risk Profiles 3
Risk profiles and conflict 5
Spending Profiles, Risk Profiles, and Divorce 5
Professional Help 6
The right professional in eight easy steps 7
2 THE LANGUAGE OF SEPARATION AND
DIVORCE 15
Custody 18
Support 19
Contents
iii
Child support 20
Spousal support (alimony) 21
3 FROM SEPARATION TO DIVORCE:
AN OVERVIEW OF THE PROCESS 23
Separation 24
The Anatomy of the Divorce Process 27
Filing for Divorce 29
Settlement Negotiations 30
Settlement 32
Divorce Decree 32
4 DIVORCE: THE FIVE MODELS, THEIR
ADVANTAGES, AND THEIR CONSEQUENCES 35
Traditional Divorce 35
Mediated Divorce 37
Arbitrated Divorce 39
Collaborative Divorce 40
Do-It-Yourself Divorce 42
Considerations for Selecting a Divorce Model 43
Abuse-motivated separation 43
Trial separation 44
Forced separation 45
Mutually agreed separation 45
5 YOUR MONEY ISSUES 49
Net Worth Statement 50
Your assets, or what you own 52
Your liabilities, or what you owe 57
Cash Flow Statement 58
Income categories 59
Expenses 62
iv Divorce Dollars: Get Your Fair Share
Into the Future 66
Future expenses 66
Future income 72
Go with the flow 72
To Keep the House or Not to Keep the House:
That is the Question 74
Don’t Forget Your Other Assets 76
Pensions 77
Registered retirement investments 79
Dividing liabilities 79
Emergency Funds 80
Protecting Yourself and Your Loved Ones 80
Powers of attorney 80
Wills 81
Beneficiary designations 82
The Value of a Career 83
Insurance 83
Home (or property) insurance 83
Life insurance 84
Disability insurance 85
Critical illness insurance 85
Long-term care insurance 86
6 SEPARATION AGREEMENT CONSIDERATIONS
AND SEPARATION PREPAREDNESS 89
Protection for Children 91
Special Expenses 92
Children’s Education 94
Parenting Plans 94
Spousal Protection 95
Contents v
7 STARTING OVER: YOUR NEW
FINANCIAL WORLD 97
Financial Planning Considerations 98
Debt reduction 100
Savings 100
Investments 101
Risk management 102
Beneficiary designations 103
Power of attorney 103
Will 103
Marriage or cohabitation agreement 104
Children and your cash flow 104
8 REMARRIAGE PREPAREDNESS 105
Marriage Contracts/Prenuptial Agreements/
Cohabitation Agreements 106
Frequently Asked Questions 107
What If There Is No Agreement? 112
Incoming assets 112
Matrimonial home 113
Gifts, inheritances, and insurance settlements 114
Joint assets 116
CPP income splitting 117
Banking issues and money handling 117
Financial Management Considerations
in (Re)Marriages 117
AWord of Caution 118
AFTERWORD 119
vi Divorce Dollars: Get Your Fair Share
Contents vii
APPENDIXES
1 Worksheets 121
2 Tips on Preparing for Separation and
Settlement Checklist 128
3 Child Support and Enforcement Resources 134
SAMPLES
1 Net Worth 53
2 Historical Cash Flow: Income 62
3 Historical Cash Flow: Expenses 67
4 Post-Divorce Expense Estimator 69
5 Post-Divorce Expense Estimator with
Child Expenses Separated 71
6 Post-Divorce Income Estimator 73

Sujets

• Personal finance
• General officer
• General

Informations

• Publié par: Self-Counsel Press
• Date de parution: 15 avril 2012
• Nombre de lectures: 3
• EAN13: 9781770408203
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

DIVORCE DOLLARS:
Get Your Fair Share
Financial planning before, during, and after divorce
Akeela Davis, CFP, FDS
Self-Counsel Press
(a division of)
International Self-Counsel Press Ltd.
USA Canada

Copyright © 2012

International Self-Counsel Press
All rights reserved.
Introduction

Alas! How light a cause may move
Dissension between hearts that love!
— Thomas Moore (1779–1852)
From the time you begin to consider it to the time your divorce decree is issued, divorce is a process full of loss. There is the loss of dreams, hope, and trust. There is the loss of self-esteem and confidence, the loss of a sense of security, as well as the potential loss of relationships with children, family, and friends. Is it any wonder that so few divorces are completed amicably?
During this time of immense emotional upheaval and the accompanying grieving, it is not surprising that your rationality suffers. You are trying to come to grips with a new reality in your life. But at the same time, you are expected to make logical financial decisions that will affect you far into the future.
Compounding this problem is the fact that you may find yourself making crucial decisions without sufficient preparation, advice, or understanding. The whole area of divorce and family law operates in a very gray, subjective environment. There are no hard and fast rules and no absolutes. There is little consistency in the application of the laws from state to state or province to province.
In the past, divorce was a territory in which only lawyers operated. However, lawyers are schooled in law, not finance, and a lawyer is not trained to advise you as to how the financial decisions you make today will affect you tomorrow, let alone 10 or 20 years from now.
The objective of this book is to help you prepare financially for a separation, and to help you understand the potential consequences of the choices you may find yourself making.
The above statement may sound cynical — but only until you look at the statistics. The numbers are shocking. In the year 2003, 2,187,000 Americans were married, and about 1,107,320 became divorced. [1] In the same year, approximately 145,048 Canadians were married, and 70,828 became divorced. [2]
Our decisions about money are very closely tied to our emotions. This book attempts to make you aware of some of the emotional flashpoints and how these flashpoints can affect you long after your divorce is finalized. Along the way, this book will acquaint you with spending patterns and the effects these may have had on your marriage and divorce settlement; the language of separation and divorce, as well as the divorce process itself; the ins and outs of settlement negotiations and interim and final settlements; and methods for calculating your post-divorce expenses and income. It will also examine the important questions of whether to keep or give up the house and will discuss the division of assets such as pensions, 401Ks, IRAs, and RRSPs. Finally, this book will examine life after divorce, or remarriage preparedness, as it is called: how a cohabitation agreement can help ensure your security and help you to deal with the financial issues of blended families.
Financial planning is not only an important aspect of divorce, but is also something that can help ease you into your new, post-divorce life. It pays to stay as calm as you can during this difficult time and make the best decisions possible for your future.

1. US statistics are from the National Vital Statistics Reports, Vol. 52, No. 22. These are provisional data for 2003.
2. Canadian statistics are preliminary data for 2003 accessed at www.statcan.ca.
1
Marriage, Finance, and Divorce

Lovers’ quarrels are not generally about money.
Divorce cases generally are.
— Mason Cooley (b. 1927), US aphorist
A large percentage of divorcing couples cited finances as one of the major areas of marital conflict. This is true for all income brackets. In her book When Money Is the Drug , Donna Boundy states that two common money issues fuel most marital fights: the first is unmet expectations (see Chapter 8 for more discussion of this factor) and the second is differing financial priorities. Ironically, most couples getting married, even for the second or third time, never discuss expectations or finances prior to the big day.
The psychological and emotional issues associated with money are numerous, and for the most part, lie outside the scope of this book. However, to illustrate potential problem behaviors associated with money in a relationship, I have broken down the behavior into two common patterns: spending profiles and risk profiles. It can be useful to have an understanding of these behaviors, because financial patterns that surfaced during your marriage can also influence the behavior of both you and your spouse during the divorce settlement negotiations. I will also suggest some strategies by which you may be able to make your path to a settlement somewhat smoother than it might otherwise be.

Spending Profiles
Spending profiles cover a wide spectrum of behavior. At one end of the scale is the ultra-saver; at the other, the ultra-spender. Fortunately, most of us fall somewhere in between these two extremes.

Savers
The saver profile is that of someone who lives very much in the future. Savers like to build their net worth so that they always have something saved for a rainy day. They certainly do not like living paycheck to paycheck. They buy less than what they can afford (that is, they live beneath their means). They use debt sparingly and only to acquire assets, then get rid of that debt as quickly as possible. Their assets (paid-off home and car, money in the bank) give them a tremendous sense of security. They usually portray a stable, solid existence.

Spenders
Spenders live very much in the present. They want to experience today, because they may not be here tomorrow. Traveling and enjoying the best life has to offer in food, clothing, and activities are, for them, the things that make life worth living. Spenders live well beyond their means and use debt to make up the shortfall. They will have the high-ratio mortgage on the grand home and will obtain a new — but leased — Mercedes every two years. They appear exciting, fun loving, and are very confident that they can handle whatever the future brings.

Savers, spenders, and conflict
Given these profiles, it is not difficult to understand the conflict that arises when a spender marries a spender, or a spender marries a saver. The degree to which a couple will be able to resolve their financial problems depends on many factors, one of which is where each of them is on the saver/spender spectrum.
The saver/saver marriages, while they may have issues as to the degree and type of saving, usually experience the least amount of financial conflict.
In a spender/spender marriage, however, issues are usually about lack of money. Since both are spenders, the cash and credit available to meet family bills or to pursue more immediate material pleasures are in short supply. Because both parties are confident of their own ability to handle their debts, each will often blame the other for any money problems they may be experiencing. These couples are crisis driven.
The third type of union is the spender/saver marriage, and that pairing is a minefield just waiting for someone to take a wrong step. The issues in this type of marriage involve necessity versus luxury, saving for the future versus living for the moment, and stability versus fun. Quite often, the very characteristics that attracted each member of such a couple to the other are what will cause the most strife between them. The stability of the saver is now viewed as dullness or miserliness. The fun-loving spender is viewed as wasteful and irresponsible. Each one’s financial behavior threatens the basic emotional needs of the other. The inability of both to empathize and relate usually leads to divorce.

Risk Profiles
Risk profiles are similar to, but also quite different from, spending profiles. Risk and spending profiles may combine to form a completely different behavior than either alone would indicate. Risk profiles can be illustrated by looking at how an individual views insurance (a defensive action) and investments (an offensive action) as part of his or her overall financial security, and may be recognized as follows:
Risk Profile Insurance Characteristics Investment Characteristics Ultra-conservative • Lots of insurance • Lowest deductibles • Likes to have large amounts of cash in bank • Does not like any debts • Prefers solid income investments • Lacks diversification Conservative • Enough insurance • Not the highest deductible • Likes blue-chip investments • Debts only against assets • Accepts prudent investment mix Moderate • Somewhat inadequate insurance • Mid to high deductibles • Likes a mix of income, blue-chip, and growth investments • Committed to paying off non-asset debts quickly • Will use prudent tax shelters Aggressive • Little or no insurance • Highest deductible, if there is any insurance • Speculator • Excessive debts • High-risk tax shelters • Prefers equity to income investments • Lacks diversification

Risk profiles and conflict
Just as in the saver/spender spectrum, partners with dramatically different risk profiles may experience more conflict in their marriages than those with similar profiles.
Even the members of saver/saver marriages can come in