The Financially Savvy Divorce
The Financially Savvy Divorce
©2010 Judy Larkins, Denver Mediator
Divorce is costly, both emotionally and financially. Dividing joint obligations and marital assets, calculating child support, maintenance payments when warranted, his-and-her matching attorney fees… If you are anticipating an empty pocketbook after the divorce is finalized, take heart!
A financially savvy mediator may be tremendously helpful in providing sound guidance through an otherwise confusing process. Mediation of all divorce agreements generally costs one to two thousand dollars, as opposed to each spouse hiring attorneys with initial retainers of five to ten thousand dollars each.
Mediation is a creative process that, when successful, culminates in workable agreements for a particular family’s situation, as opposed to what the letter of the law may dictate via a court order if the couple cannot agree.
The mediation process may assist couples in identifying individual financial priorities:
- real estate (primary residence, second homes, and rental investments)
- retirement funds
- stock options
- cars and recreational vehicles
- collections, antiques, artwork, etc.
One spouse may value real estate ownership while the other spouse places greater significance on retirement funds. A financially savvy mediator will assist the couple to evenly divide assets taking all factors into consideration. This can be more involved than it appears on its face. One common mistake is overlooking the tax ramifications in dividing assets by making dollar-for-dollar offsets rather than addressing the pre-tax versus non-taxable assets (retirement funds are usually pre-tax; equity gains for a primary residence are tax exempt up to $250,000 / $500,000 for certain joint returns) .* For example, paying a marital settlement from a 401k withdrawal could cost a 10% penalty, tax on the withdrawal, and put the taxpayer in a higher taxable bracket for all income in the year that the withdrawal is made. It may be more beneficial to use a Qualified Domestic Relations Order, or QDRO, where the assets are transferred “in kind” – from a pre-tax retirement account into the spouse’s own pre-tax retirement account.
Another decision-making challenge may be the family home; the housing market currently favors buyers. The marital home is one of the largest investments a couple makes during a marriage. Evaluating whether to keep the house until the market rebounds is an important consideration. If it makes sense to keep the home, a financially savvy mediator will assist the couple in negotiating written agreements that address who will live in the home (a renter or one of the spouses), who gets the mortgage interest tax deduction, when a spouse has the right to demand the house be refinanced or placed on the market for sale, who will pay for the repairs along the way, how the equity will be divided when the house is eventually sold or refinanced, and other necessary agreements.
When interviewing a mediator to assist in your divorce or post-divorce issues, ask questions to determine whether the mediator has expertise in the areas that are important to you. An incomplete or bad agreement can be costly, and like all professions, there is a wide variance of financial and business experience between mediators.
Judy Larkins is a divorce and family mediator who has been in full time practice since 2002. She is highly sought after in high conflict, complex financial cases where her creative ideas and strong business background lends additional value. Judy can be contacted by email [email protected] or by phone 303-864-9675. She offers conflict resolution strategies and insights on her website at http://judylarkins.com .