Divorce Matters

About 70% of adults will be married by the time they reach 44 years old, often without financial planning should divorce occur. Half of these marriages will dissolve, though none of us anticipate we will be one of the statistics. We are not ready for the emotions that arise with a divorce, including anger, sadness, lost hope, and sense of failure that accompany the process.

At Applied Divorce Solutions, we are here to help you divorce in a positive, stress reducing family friendly alternative instead of the drama within the court system. When differences differ at Applied Divorce Solutions, all participates use their best efforts to create proposals that meet the fundamental needs of both parties, if necessary compromising the issue in order to reach a complete settlement.

Financial Case Study

John and Jane are getting a divorce. What makes most sense for them in terms of a property settlement and finances? It depends – it depends on their situation, and on the advice they get from the professionals assisting them.

John and Jane are both 40 years old. They have two children and own a home worth $165,000 that has net equity of $77,500. Their IRAs and 401(k) retirement plans are currently worth $165,500.

John earns $90,000 a year and has take-home pay of $68,760 a year. Jane has never worked outside the home and has limited marketable job skills. Her plan is to somehow make do with the settlement plus a job that pays $7 an hour and take-home pay of $14,500 a year.

Click on the Read the Settlement Proposal below to see what Jane and John thought would be equitable and fair.

+ Read the Settlement Proposal

After the divorce, Jane and the children will live in the house, which will be deeded to her. She will also receive $44,000 of the present value of the retirement money, and John will receive $121,500. In other words, the assets will be divided equally. John will pay Jane alimony of $600 per month for 5 years and child support of $225 per month per child. He will also pay college costs when the children start higher education in 4 years.

John’s expenses include his normal living expenses, child support, alimony and college costs. Jane’s expenses include support of the children and are reduced when each child leaves home.

What could be wrong? This appears fair.

What is wrong is clearly demonstrated in the following graph. In this simple scenario, Jane’s assets will be completely depleted within seven years while John’s investments will grow dramatically.

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Networth for Initial Proposed Settlement

John is not out to hurt Jane and his children. He wanted “fairness,” and that’s what this settlement seemed to provide. But guess what? Jane is in a perilous situation, and it will prove very difficult to get her out of it.

What should have happened?

Someone with financial expertise should have looked at this settlement and explained to the parties where it would lead.

To improve Jane’s financial future, the settlement could have provided her with alimony of $1,500 per month for 10 years. This would cost John $1,005 per month in after-tax dollars. A more realistic child support payment would be $1,125 per month for two children for a couple with their income.

If fairness is the goal, Jane should be awarded an additional $24,300 from the retirement plans. She also needs to make some changes. She may need to cut her cost of living by 10%.

Had these changes been incorporated in the original settlement, the results would have been dramatic. John would still have a surplus to add to the value of his investments. If John stays within his budget and invests all of his extra income, his investments have the capacity to grow to $2.5 million by the time he is age 60. Not bad.

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Networth for Second Proposed Settlement

This sample case illustrates the value of financial planning as a means of reaching more equitable divorce settlements. And they are achievable in a way that doesn’t unduly disadvantage either party. What is needed is foresight. And expertise.

If the court’s intent is to treat both parties in a divorce as equitably as possible, it is essential to analyze the marriage as if it were a financial contract, with each party making reasonable and meaningful tangible investments.

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+ A Divorce Financial Planner Can Add Value With These Benefits

  1. Eliminate potentially costly financial errors by providing detailed and precise reports.
  2. Analyze tax implications of various scenarios for spousal and child support and marital and property division.
  3. Help clarify and analyze financial options so the client can make informed, intelligent, and timely financial decisions.
  4. Provide cost-effective guidance to the client to help reduce emotional distractions and make work sessions more productive.
  5. Provide reassessment of the client’s changing financial needs and lifestyle to help them move forward on a post-divorce basis.
  6. Help improve the efficiency and profitability of your practice by allowing you to focus on what you do best.
  7. Elevate the professional quality of casework through outsourcing to a financial expert who has up-to-date, specialized software and financial planning tools.
  8. Help clients better understand and recognize the risks of going to trial.
  9. Help manage expectations and increase client satisfaction, often resulting in additional referrals.
  10. Serve as an intermediary to help reduce liability concerns related to financial issues.

+ What is a CDFA?

A Certified Divorce Financial Analyst is a trained professional who has passed certain tests to become a financial analyst specializing in divorce issues.

Who do CDFAs help?

CDFAs help clients understand the short- and long-term financial impacts of any proposed divorce settlement. They also provide valuable information on financial issues related to the divorce, such as tax consequences, dividing pension plans, continued health care coverage, stock option elections, and much more.

CDFAs also help the client’s legal team make financial sense of proposals. CDFAs provide expert witness testimony in trials and arbitrations. CDFAs can provide attorneys with tools they need to prevail in court.

Increasingly, CDFAs are finding their services called for in the mediation and family counseling arenas. Information helps alleviate fears and misunderstandings that surround money issues.

Should a person hire a CDFA instead of an attorney?

Definitely not. The ICDFA, Institute of Certified Divorce Financial Analysts, highly recommends that any person getting a divorce seek legal counsel. Divorce is a legal process that requires professional advice, just as the financial aspects of a property settlement need analysis by a professional trained in the field.

Do CDFAs help only men or only women?

CDFAs are trained to advocate for men and women. The CDFA simply interprets the numbers and helps the parties find support for a case that takes both sides’ financial future into consideration. Can CDFAs act as a neutral party to help a couple reach a settlement?

Many CDFAs are also trained mediators and take a role in facilitative mediation and collaborative law. In this role, CDFAs do not act as attorneys and cannot offer legal advice. The ICDFA always recommends that any person going through a divorce receive independent legal advice.

+ Grasp What the Numbers Really Mean

All too often, no one involved in settlement negotiations has specialized training in financial planning. Clients do not always get a complete picture of the fundamentals underlying the settlement they will be asked to sign.

Applied Divorce Solutions excels in helping everyone involved get a better handle on the money issues. Using Family Law Software™ and graphic models, the professionals at Applied Divorce Solutions give both partners a clearer view of their long-term financial futures after divorce. Where disagreement over money occurs, the graphic depictions of expected outcomes can be very powerful in helping parties reach settlements that fully address the financial needs and capabilities of each.

"A settlement can look very fair in terms of today’s value of the assets that have been divided between the spouses. But assets have different characteristics, especially where value over time is concerned. For a simple but telling example of what can happen if you don’t fully understand some fundamentals of financial planning click here."

Applied Divorce Solutions provides clear, concise information on the financial issues that come up in divorce, including tax consequences, dividing pension plans, continuing health coverage, stock option elections, and much more. Good information helps alleviate the fears and misunderstandings that often accompany divorce negotiations.

Using the Applied Divorce Solutions approach, even clients with no financial background can grasp the big-picture impact of the financial decisions they will make in divorce. In some cases, Applied Divorce Solutions is called on by one of the parties to provide expert testimony. Applied Divorce Solutions is also available to help divorce counselors, mediators, and attorneys whose clients have problems that require professional financial planning to resolve.

+ Divorce Statistics

Marriage and Divorce

Number of marriages: 2,077,000

Marriage rate: 6.8 per 1,000 total population

Divorce rate: 3.4 per 1,000 population

By age 30, three-quarters of women in the U.S. have been married and about half have cohabited outside of marriage, according to a comprehensive new report on cohabitation, marriage, divorce, and remarriage released today by the Centers for Disease Control and Prevention (CDC).

The report, prepared by CDC’s National Center for Health Statistics, focuses not only on individual factors but also community conditions associated with long-term marriages as well as divorce and separation. Based on interviews with nearly 11,000 women 15-44 years of age, the study also examines conditions associated with cohabitation, including the impact that pre-marital cohabitation has on marriage and marital stability.

“We’ve expanded our analysis beyond the basic ‘bookends’ of marriage and divorce to look more closely at how the issue of cohabitation impacts the life of a relationship,” said Dr. Ed Sondik, Director of CDC’s National Center for Health Statistics. “At the same time, we’ve also attempted to look beyond the influence of individual characteristics and are looking more at the characteristics of the community at large to get a comprehensive picture of what factors impact marriage and divorce rates in this country. Among the findings in the report: unmarried cohabitations overall are less stable than marriages. The probability of a first marriage ending in separation or divorce within 5 years is 20 percent, but the probability of a premarital cohabitation breaking up within 5 years is 49 percent. After 10 years, the probability of a first marriage ending is 33 percent, compared with 62 percent for cohabitations."

The study suggests that both cohabitations and marriages tend to last longer under certain conditions, such as: a woman’s age at the time cohabitation or marriage began; whether she was raised throughout childhood in an intact 2-parent family; whether religion plays an important role in her life; and whether she had a higher family income or lived in a community with high median family income, low male unemployment, and low poverty.

The report also shows that marriages that end do not always end in divorce; many end in separation and do not go through the divorce process. Separated white women are much more likely (91 percent) to divorce after 3 years, compared with separated Hispanic women (77 percent) and separated black women (67 percent).

Meanwhile, the probability of remarriage among divorced women was 54 percent in 5 years–58 percent for white women, 44 percent for Hispanic women, and 32 percent for black women. However, there was also a strong probability that 2nd marriages will end in separation or divorce (23 percent after 5 years and 39 percent after 10 years).

The likelihood that divorced women will remarry has been declining since the 1950′s, when women who divorced had a 65 percent chance of remarrying. Data for 1995 show that women who divorced in the 1980’s only had a 50 percent chance of remarrying.