Protect Your Family and Your Assets throughout Divorce Proceedings

By John Henry Dreyfuss, MDalert.com staff.

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  • A mediated divorce is the best way for a divorcing couple to protect the family, determine the future course, and to equitably distribute the assets.
  • Divorce is one of the most common and serious threats to financial security in the United States.
  • According to statistics from the Centers for Disease Control and Prevention (CDC), approximately 43% of all first marriages in the U.S. end in divorce. Second marriages end in divorce about 60% of the time. Nearly 75% of third marriages end in divorce. (Figure 1.)
  • While divorce is frequently an emotionally devastating experience, it can be financially disastrous as well.

Divorce Can Be a Financial Nightmare

It is easy to see how divorce can be financially traumatic to a family. For starters, many major family expenses—housing, clothing, food, transportation, and others—will double at least as soon as the parents begin to live separately. On top of these new, additional expenses, the average cost of a litigated divorce is about $20,000.

For families of moderate wealth, divorce can pose a serious threat to the usual standard of living. To families living around the average income for a family of four in the U.S—about $118,000 per year—or at the median for a family of four—about $52,000 per year—a contested divorce can be ruinous. These families simply cannot sustain the $20,000 in legal costs atop the usual living expenses which are ≥2x what they were when the family was whole.

 

Figure 1. About 43% of first marriages, 60% of second marriages,
and 75% of third marriages end in divorce.

Don’t Contest the Divorce, Mediate It

One strategy that is increasingly common among divorcing couples to the use of a mediator to help the couple reach a fair agreement dissolving the marriage. In the case of a mediated divorce the couple hires a single attorney—the mediator—who represents the interests of the entire family and helps the couple write a divorce decree to which they both agree.

This decree will contain all pertinent decision: how the children will spend the holidays and with whom, which parent gets custody, or whether custody is split evenly, the amount of child support and/or spousal support that is paid by one party to the other, the distribution of property, and everything else the couple wants to include in the agreement. Once they agree, both spouses sign the agreement and then present it to the court.

A mediated divorce can still be traumatic for the couple, the children, and the entire family, but it avoids the astronomical costs often associated with a litigated (contested) divorce and it spares the family the indignity of having family secrets made public in a court of law.

 

Figure 2. Divorce can be emotionally devastating and financially traumatic.

Once the mediator writes a divorce contract to which both parties agree, the divorcing couple and the mediator go before the court and file the divorce decree with a judge or magistrate. The judge asks a few questions to ensure that both parties arrived at the agreement of their own free will, and that both are satisfied with the fairness of the agreement, and the entire courtroom process is often completed in <60 minutes.

Any lawyer can work as a mediator but if the mediation process breaks down the mediator cannot represent either of the divorcing parties. If either member of the couple decides to break away from the mediation process, it is common that both parties will then seek a litigator and that the divorce will become contested. However, in many cases, the litigators can use parts of the mediated agreement for the foundation of an equitable contested divorce.

Community Property States

To understand better how a divorce affects finances, it helps to understand how property is divided when the marriage is dissolved. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, community property law stipulates that if there is no valid pre- or post-marital agreement, the court will simply divide co-owned property equally between the divorcing parties.

 

Figure 3. Map of community property states (in red) in the U.S.

The question of what is equal has kept many lawyers in court for many hours. For instance, the value of a property separately owned by one spouse, but maintained or enhanced by the other spouse, may appreciate during the marriage. In such a case, the way the asset is titled will likely not be the determining factor in how the property is awarded. Instead, when the asset was acquired and how it was maintained are far more important in determining how the asset will be distributed by the court.

In a divorce with facts like these, a home that was solely owned by one spouse but cared for by the other may become partial community property. This can require lengthy and expensive legal battles. Or, perhaps worse, the sale of the property, and the distribution of the assets—or debts—linked to the property is decided as the only fair solution. Of course the courts do not take into account the extraordinary sentimental value that the home represents to the children and the divorcing spouses.

Equitable Distribution States

Non-community property states are called equitable distribution states because courts in these states have discretion to divide the property in a manner that the court deems equitable and fair. The court will normally consider a number of factors in deciding what is equitable, including but not limited to the duration of the marriage, the age and conduct of the parties, and the present and future earning potential of each spouse.

The danger of equitable state divorces is that courts often distribute both non-marital assets (those acquired before the marriage) as well as marital assets (those acquired during marriage), in order to create an arrangement that the court considers fair. In fact, the spouses rarely agree that these settlements are fair, but they nonetheless will have paid two lawyers thousands of dollars to help the court reach this settlement. In many cases, no one but the lawyers are happy with the final decision.

 

Figure 4. Divorce proceedings are initiated by the woman in nearly 70% of cases.

Can A Premarital Agreement Protect You?

A premarital agreement (a prenuptial agreement, premarital contract, ante-nuptial agreement, etc.) is the foundation of any protection against the financial fallout of a contested divorce. The premarital agreement is a contract between the spouses that is written and signed before the marriage takes place. (See also “post-marital agreement,” below.) It specifies the division of property and income upon divorce. It can also state the responsibilities of each party with regard to the children, property, religion, and any other matter that the couple choose to address in the contract.

The agreement cannot limit child support because the right to child support lies with the child and not the parent. For couples who have not entered into a premarital agreement before the marriage, many states recognize the validity of a post-marital agreement which can set forth the same rights and responsibilities addressed in a pre-nuptial agreement.

Protect Your Children from Divorce

As you can see, one secret to protecting assets from divorce is keeping them as separate property and not commingling them with community or marital property. There are many strategies that are simple to execute. They range from mortgaging your house to signing a premarital agreement to creating trusts. There are many strategies that reasonable couples can use to ensure that the family is protected from the trauma of a contested divorce.


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