Couples going through divorce mediation often wish to consider financial matters beyond immediate spousal or child support and property division. Two issues that commonly come up are college planning and estate planning. Not only can such issues impact divorce negotiations, but many divorcing couples are approaching them for the first time and will benefit from the support of a mediator during the process. Even if you already have an estate plan, you will generally need to revise it during divorce. Read more
Deena and Greg, who are both in their forties, have recently decided to divorce. They are on good terms with each other, and they believe that they could resolve all of their issues amicably in divorce mediation. They are planning to meet with a mediator together before consulting with separate attorneys. One major concern is bothering them though. How can they plan financially for their children’s futures? Read more
In our last post, we talked about possible ways to achieve a modification of a divorce settlement proposal if your financial situation has changed drastically due to the pandemic. If you have not yet signed a Marital Settlement Agreement (MSA), you have options in addressing property distribution issues such as marital home or business buyouts. If you have already signed your MSA, however, your options are more limited. Read more
Way back in March of this year, which to many of us feels like eons ago, we talked about the importance of addressing the potential financial impacts of COVID-19 in divorce mediation. With the pandemic still raging, unemployment high, and the damage to many businesses ongoing, now is a good time to look a little more closely at what this might mean. Read more
Alice was surprised when her consulting attorney gave her a blank New Jersey Family Law Case Information Statement (CIS) and recommended that she fill it out before her first mediation session. “Ask your husband to complete it also,” the attorney added. “It will really help you organize your financial issues right off the bat.”
Alice took the form home and looked it over and now she is feeling a bit overwhelmed. It’s so official looking and so detailed. Alice and her husband Blake chose mediation partly so that they didn’t have to deal with all the red tape of court. Do they really need to bother with this form? Read more
In our last post, we talked about mediation and planning for college expenses. Today we will look in more detail at the categories that you and your child’s other parent should address in any financial planning meetings about college contributions. These include: Read more
When we last saw Gerry and Beth, they had decided to try marriage counseling. In the meantime, however, Beth is also meeting with an attorney to help her understand what they would need to address in a divorce. Gerry is holding off on talking to an attorney, but he has done a little research on his own. He too is concerned about how they would resolve their financial issues. Today we will consider how divorce mediation might help this couple.
As we learned in our introductory post, Gerry currently earns approximately $150,000 per year as the CEO of a small company. Beth, who spent 10 years as a stay-at-home mom, now earns $60,000 per year as a teacher. She would like to retire next year, when she will be eligible for an annual pension of about $22,000. The couple’s home, which they purchased during the marriage, is fully paid for and has a current value of about $450,000. They have joint savings and investments of $50,000, and Gerry’s 401k has a balance of approximately $800,000.
On the recommendation of her attorney, Ms. White, Beth is preparing a detailed budget and completing a New Jersey Family Part Case Information Statement. She is finding this somewhat daunting with so many decisions still up in the air. Ms. White points out that some of those decisions might be easier with expert assistance. They could start by hiring a joint Certified Divorce Financial Analyst (CDFA). A CDFA can help mediation participants project future scenarios and identify potential ways to optimize each party’s post-divorce financial situation. Hiring a joint CDFA can result in substantial savings compared with hiring separate financial experts for litigation.
Let’s look one at a time at the issues facing Beth and Gerry:
Because the New Jersey alimony statute (NJSA 2A:34-23) does not provide formulas, but instead simply contains lists of factors, mediation is a good forum for presenting alimony arguments. Spouses who work out their own solutions can save a great deal of time and money that they would otherwise spend arguing in court. For example, Gerry and Beth might be able to agree on a graduated payment schedule based on anticipated changes in their future incomes. Their alimony discussion could also intersect with their discussions about property distribution.
Amount of Alimony
Like the first two couples in this series, Gerry and Beth have a significant discrepancy in income. This means that Gerry is likely to end up paying Beth some amount of alimony. Beth assumes that she will receive enough to maintain the marital standard of living. Ms. White cautions her that this would be true only if Gerry could afford to pay this much without lowering his own standard of living. There is also the additional complicating factor of Beth’s decision to retire next year, at 62. This would be entirely voluntary, rather than prompted by a lack of ongoing employment opportunities, ill health, or some other factor beyond Beth’s control. Even if Beth stops working, Gerry can therefore argue that alimony should be based on her $60,000 salary, rather than on the $22,000 pension. This could reduce payments by several thousand dollars per year, significantly impacting Beth’s post-divorce lifestyle.
Duration of Alimony
Unlike either of our first two couples, Gerry and Beth have been married for more than twenty years, allowing a New Jersey court to order “open durational” alimony, meaning an award without a set ending date. There would be a rebuttable presumption, however, that alimony would end when Gerry reaches full retirement age, in only three years. Beth could challenge this based on the factors listed in the statute. These include the parties’ ages, health, and other available assets and income; the degree to which an alimony recipient has depended economically on the other spouse; whether the recipient has reached retirement age and has had an opportunity to save adequately for retirement; whether the recipient has exchanged other claims, such as property rights, for more alimony; and any other factors that a court may deem relevant (NJSA 2A:34-23j (1)).
Distribution of Marital Property
Neither Beth nor Gerry appears to have any separate property of significant value. Their home, joint saving and investments, and retirement accounts or pensions are all marital property, as they were all purchased or funded entirely during the marriage. They would, however, have some decisions to make regarding the equitable distribution of their marital property.
The Family Home
Beth has already indicated that she would like to move to New Hampshire, so it could be up to Gerry to decide whether or not they will sell the family home. Since they bought it during their marriage, they could each begin by claiming half the value. There is nothing to prevent either of them, however, from arguing for a different division. New Jersey statutes include a factor list for this as well (NJSA 2A:34-23.1). If they sell the house, they can simply divide the proceeds. If Gerry wants to keep it, however, they will need to agree on an exact market value, so that Beth can get a credit for her share. They could hire a licensed real estate appraiser for this, or they could simply collect some comps on their own. Gerry might then consider taking out a new mortgage to buy out Beth.
Beth asks Ms. White why Gerry couldn’t just give her a portion of his 401k in exchange for her share of the house. “He probably owes me part of the account anyway,” she surmised, “since he has $800,000 saved already.”
Ms. White’s response is that retirement assets need to be valued differently than other assets. There are also open questions, she points out, about the appropriate ages of retirement for each of them, as well as about the potential impact of social security payments. Beth’s own pension would be higher if she waits until 65 to retire, and it isn’t realistic to expect Gerry to pay for her decision not to wait. “$800,000 might sound like a lot,” she notes, “but it wouldn’t maintain even one person at your current lifestyle.”
“We should just sell the house then,” Beth proposes. “We’ll each have plenty of money after that, because we’ll each only have half the expenses we had before.”
“That’s a common misconception,” Ms. White comments. “One person could need 80% or more of the amount that two people need. You lose the benefit of many shared expenses.”
Beth leaves Ms. White’s office in deep thought. She is beginning to question whether or not retiring next year is really such a good idea. After all, she still enjoys her job. Maybe, she thinks, she should just spend a few weeks in New Hampshire this summer and reconsider everything.
Beth and Gerry still have many things to work out. Our series, however, ends here. As we moved through these stories, we saw two out of three couples decide that they wanted to pursue marriage counseling before deciding whether or not to proceed with divorce mediation. In our next post, we will take a closer look at marriage counseling. When is it appropriate? How is counseling different from mediation? Is there such a thing as “divorce counseling?” Stay tuned as we address each of these questions.
Are you interested in talking to one of our experienced mediators about how to structure your own divorce mediation? Contact us today for a free consultation.
In our last post, we saw Eric and Eva address their child custody issues in mediation, with surprisingly positive results. Today we will look at some of the financial issues they will need to resolve before finalizing their divorce. These include alimony and child support payments, identification and distribution of marital property, and division of retirement assets. Read more
Today we are going to look at some ways to resolve financial issues in divorce mediation. We met Katherine and Julian in our two previous posts. They are both 33, have no children, and have been married for six years. As we learned last month, they decided to go through marriage counseling to address emotional problems before making a final decision to divorce. If they do divorce, the next question will be whether or not they can use mediation effectively. Read more
When we last saw Derek and Stacey, in Part VII of “Up Close and Personal” they were wrapping up their third mediation session. They had made great progress working out their property division and deciding how to handle child custody, but they still needed to deal with child support, and possibly alimony. Read more
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