Divorce and Money: Making Smart Decisions
An important part of the divorce process is to understand the financial situation of the family. Many people lack clarity on the state of their finances and the impact of their financial choices. This can have a negative effect on negotiations because it can increase positional behavior. In my opinion, a meaningful negotiation cannot begin before the finances are reviewed and understood. That means that couples entering into an agreement need to consider each person’s values, goals, cash flow, assets and liabilities. Here are steps to bring financial clarity to the negotiation:
- Preparing financial information: In collaborative law and mediation, we use a financial statement of net worth to compile information on monthly expenses, assets and liabilities. The form is used as a helpful tool in organizing the financial data. It provides a foundation for understanding the family cash flow, projecting expenses moving forward and other money management decisions. The family budget, assets and liabilities should be discussed and analyzed to determine whether the cash flow meets the couple’s priorities and whether changes need to be made to serve the needs of the family moving forward. Before the negotiations begin, the couple should have an opportunity to examine the expenses together and ask questions geared towards understanding how the family spends its money. This is also an opportunity to examine the nature of assets and liabilities so that when options for settlement are developed the possibilities are clear. The mediator, collaborative lawyer and/or financial neutral facilitate these discussions to ensure that a productive conversation takes place.
- Crunching the numbers: Once the snapshot of the family cash flow is in place, we can further refine the numbers to look at essential needs vs. “what I would like to have” or “what I wish I could have”. The beauty of an out-of-court settlement process is that we can tailor the process to make sure that the couple is able to make good decisions during the negotiations. We can compare alternatives for cash flow and asset/debt division as part of the evaluation of options. We also sometimes use a financial neutral to assist us in crunching the numbers and maximizing the cash available to the family.
- Developing options: Once the financial information has been gathered and reviewed, it is time to develop options. We brainstorm different ideas for cash flow based upon the priorities that have been developed by the couple. We then talk about how these options will work and whether they are practical.
- Decision-making: There is sometimes a discrepancy in a couple’s understanding of day-to-day finances or the family’s assets and liabilities. By following a structure that includes thorough preparation and review of the finances it becomes easier to evaluate options and make sensible, practical decisions.
- Moving on: It is important to take the time to build a foundation to use in negotiating the finances of divorce. By taking the time to achieve a solid understanding of the family’s financial picture, it is more likely that the agreements will be reasonable and will reflect the family’s needs and priorities.