“Marriage is about love; divorce is about money.” Gabrielle Clemens authored a book and practice centered on this premise. Her focus, and the focus of mediation, is understanding the marital pot, knowing how different money works, and making wise decisions in order to save money in divorce.
The difference—mediators know divorce is about much more than just money. Where Ms. Clemens reduces divorce to just dollars, mediators know divorce touches everything. Just focusing on the dollars can significantly damage other areas—ultimately leading to higher financial costs. Mediation offers clients the opportunity to constructively address all the challenges in divorce—and save money as they do.
What NOT to do.
The first step in saving money is knowing what not to do. The biggest mistakes begin with common assumptions. Assumptions that make sense to the couple but almost always cost more in the long-run.
Some key examples:
- We’ve already decided everything, we just need you to write it up. People often say this to “save money on the process.” They come with what seem reasonable agreements. Yet, these agreements almost always fall apart once couples understand what the agreement would mean going forward. Or, once each truly hears what the other wants.
- We don’t need to share financial information—we will be able to just agree. Without concrete information, people operate in a vacuum. They spin their wheels arguing in the abstract. Concrete numbers define the options. A few dollars spent understanding the finances saves folks from the high cost of arguing for hours over unknowns.
- We have to just split everything down the middle—right? While Indiana does have a 50-50 presumption, even in court the presumption is a guide. Judges can create a different split. Mediation offers couples even more latitude to choose the percentages that make sense to them. If the couple decides to split the estate 50-50, that still doesn’t mean they must split every account in half. There are options—options that may serve each person much better.
All to say—when couples cooperate with the mediation process and provide financial information upfront, they get to the heart of the financial conversations more quickly. And, they have the concrete information needed to make solid decisions. They save frustration, time—and money.
What to do:
Complete the financial discovery documents.
These documents ask for details on all the assets and liabilities in the “marital estate.” In Indiana—everything you had when you got married and everything accumulated during marriage (no matter whose name is on it or who brought it in) goes into the marital estate. In a litigated divorce, a judge may decide to remove an asset or liability—based on statutory factors they must consider. In mediation, the couple can even more freely agree to remove different assets or liabilities. But, first—everything must go in. There can be severe consequences (both in court and in mediation) for withholding information.
When clients give details on all that they own and all they owe, they lay the groundwork for agreement.:
- Both people fully understand what they have to work with. This creates transparency and puts both on equal footing for making decisions.
- With understanding of the resources, mediators may offer options neither person knew were available. Options which better meet the priorities of each and at a lower cost.
- Mediators have all the information needed to write the Settlement Agreement at their fingertips—saving you time and money on that part of the process.
Understand the pots of money.
Mediators use all the information clients provide to explain how each “pot” of marital money works. The different factors include:
- How to compare values between the pots
- How to access each type of money
- Costs of accessing
The first key is for clients to understand how the values in various pots compare. As an example—one spouse gets $100,000 of money from a bank account and the other $100,000 of money from a traditional 401(K) plan. They aren’t actually equal. The money in the bank account is truly worth $100,000—there are no taxes to access the money. It can sit in the bank, be spent, or invested to grow.
The person getting the 401(k) money can leave it to continue growing. However, if they need to access the money, they will—at minimum—pay income taxes. They may be able to avoid paying penalty, but need to follow stated protocols to do so. Mediators help guide this process.
So, if both need $100,000 to put down on a house—the first will have $100,000; the second about $85,000 (if taxed at a 15% rate). Understanding how values compare helps clients avoid surprise outcomes and leads to more informed choices.
Understand the cost of accessing different pots.
In the same way—understanding the costs of accessing different pots helps clients decide which assets to divide. If one spouse wants to keep the house, they may think it is best to “buy out” the other person’s equity in the house. To do that they will likely have to either refinance in their own name (which also gets the other spouse off the mortgage) or take out a Home Equity Line of Credit (a HELOC).
If the spouse chooses to refinance and buy out the spouse, that means they are paying a larger mortgage—and often at a higher interest rate than before. This can put the mortgage payment out of reach for the person desiring to stay. If the other spouse is willing to stay on the mortgage, they could use a HELOC to buy out their spouse’s portion. That allows them to keep principal of the mortgage at the lower rate, but they often still pay the equity portion at a higher rate. Knowing these costs helps the person decide if keeping the house is best.
If there are other pots of money to offset the house equity—i.e. the person who wants to keep the house has enough in their 401(K) to pay both the house equity amount and the taxes on that amount to the other spouse—the first may be able to simply assume the mortgage. If they qualify, the assumption allows the first to keep the same mortgage at the same mortgage rate and get the other spouse off the mortgage. The first may be willing to give up retirement money—knowing they have time to rebuild that account—for the security of keeping this house at a payment they can afford now.
Be willing to focus on priorities and creativity.
Those who focus on “winning” often lose the most—in time, emotional distress, and money. The commitment to “getting what I deserve” or “fighting for everything (other) owes me” comes out of the adversarial process. If someone truly needs to win—that process works great.
Yet, seeking only what works for one side means battle. And battles are expensive. More—truly winning more is rare. In our mediation practice, the few clients who left mediation to “fight for more” consistently ended up with worse outcomes than were proposed in mediation. And, they paid dearly for a process that produced less.
The clients who willingly listen to what each other needs, who pool ideas about how to split resources in ways that serve those needs, and who adjust expectations to financial reality fare much better. All the information they’ve provided clearly defines the financial reality and possibilities. They look at the numbers and, with assistance from mediators, consider creative options.
Working together saves money—and much more. Instead of living in ongoing turmoil (and paying professionals to keep the turmoil going), clients focus on what they can do. This leads to agreement which leads to a far calmer life.
The turmoil ends. Clients move into an understood, focused direction for building their new lives. The road is seldom perfect. But, clients rest in the knowledge they created the best path possible. That rest—priceless.
If you would like more information on navigating all the decisions divorce requires, contact Resolution Mediation by clicking HERE or calling 317-793-0825. We look forward to serving you.
As always, the above is for information only. Seek a professional for guidance in your personal situation. This is an advertisemet
