Financial Errors to Avoid in Divorce Negotiations

Undergoing a divorce can be stressful and overwhelming. However, you can significantly mitigate the potentially devastating financial impact of the process by avoiding some of the more common financial errors clients make during divorce negotiation proceedings. Here are three of them to avoid:

ERROR #1: Assuming 50/50 Division of Property Is the Status Quo

One of the most common (and often most costly) misconceptions amongst clients contemplating a divorce is that all assets will be split equally. When a divorce court allocates the property and debt of the parties, it is legally required to assign it in a “just and equitable” way. This sometimes means that the court will disproportionately split property and debt to the benefit of the spouse who is most economically disadvantaged at the time of the divorce proceeding.

Even if the court is ratifying a divorce agreement in which the parties have stipulated that all property and debt be divided equally, the long-term financial effects of this approach are often not ideal. To maximize the chances of an optimal outcome for both spouses, clients should visualize the property division stage of divorce negotiations as an exercise in financial strategy for the future. The financial division process should be mainly focused on distributing resources to accomplish specific goals. For example, former spouses should aspire to create two independent, financially sustainable post-divorce homes in which there are established plans for childcare, paying off major financial commitments entered into jointly during the marriage (such as mortgages and loans), and making necessary adjustments for the respective socioeconomic circumstances of each spouse in the aftermath of the separation.

Agreeing upon mutually beneficial financial goals can be challenging, depending on how contentious the divorce proceedings are. But devoting a collaborative effort towards determining future expenses, wages, obligations, and other assets early in the process will pay dividends in the future. Having an experienced divorce attorney on your side from the earliest stages of your divorce can make this planning process more efficient and productive – saving you time, stress, and money.

ERROR #2: Believing There’s A Predictable Spousal Maintenance Formula

Washington does not have a set formula for determining spousal maintenance (also known as alimony) amounts. Instead, it is done on a case-by-case basis. There is a widely circulated yet incorrect myth that for every “x” years the marriage lasted, there is one year of corresponding maintenance. This type of predictable approach is patently false. When the judiciary calculates spousal maintenance, the duration of the marriage is merely a single, non-determinative factor among many others that are considered collectively.

Per Washington statute, the court is required to weigh all equitable details when formulating alimony. This includes whether a spouse is a primary caregiver for dependents; the income, assets, and expenses of the spouses; whether one spouse is planning to remarry, earn a new degree, or will experience another significant life change in the future; the spouse’s standard of living; and the spouse’s health status.

When it comes to setting the alimony duration, there are three basic categories:

  • Temporary: This award goes into affect over the course of a separation period prior to the divorce being finalized and the dissolution of the marriage. It is intended to provide for a temporary standard of living premised on the spouse’s circumstances before the couple was separated, and it only remains enforceable until arrangements for post-divorce spousal support are made.
  • Rehabilitative: When a spouse requires time to complete a degree or certification in order to support themselves post-divorce, these payments assist them in doing so. However, these may be impacted or capped, depending on the length of the marriage and other factors.

Regardless of whether you will be paying or receiving alimony, it is essential to consult with an experienced, trusted divorce attorney who can present your case to the judge strategically and convincingly.

ERROR #3: Overlooking Pricey Assets

Divorce is essentially the ending of one chapter of life and the start of another. From a financial viewpoint, the focal point of the divorce process is the appropriation of marital property and debt. The majority of today’s divorcees own multi-tiered, diversified financial portfolios that can be challenging to equitably and accurately divide. For example, determining the value and ownership of even the most commonly dealt with assets (such as real estate, savings accounts, vehicles, boats, etc.) can be contentious. Additionally, there are more nuanced assets like investments, and employment benefits like life insurance, pensions, stocks, and deferred compensation that must also be categorized and valued to complete the settlement process. To further complicate the process, there are several other types of assets to take into account, including: costly furniture, valuable art and antiques, horses and pets, wine collections, and joint ventures entered into during the marriage.

The divorce process is inherently stressful, making it easy to overlook key assets during the negotiation and settlement phase. While understandable, this error can result in a financial windfall for one spouse or a significant loss for another. Washington statute designates overlooked assets as “undivided.” This means that it remains formally co-owned by both parties following the divorce and can be contended for during post-divorce judicial proceedings. It is preferable to do it properly the first time, of course, and avoid the risk of having to go back to court later. So don’t forget that you may be entitled to the following, oft-overlooked assets on top of the more mainstream ones:

  • Benefits from former jobs: Be sure to double-check for stock options, restricted stock, 401Ks and pensions, and deferred compensation programs from all of your former workplaces.
  • Capital losses: You’ll need to take a close look at your tax returns to determine this asset. If capital losses outweigh capital gains and also outstrip the permissible tax deduction for a given year, the loss can be carried over to subsequent years. If the loss took place during the course of the marriage, it could be used to reduce tax liability and should be accounted for during the settlement.
  • Cemetery plots: Considering the fact that you are getting a divorce, it’s probably safe to say you no longer want to be buried next to your former spouse. A cemetery plot can carry a lot of value and should likewise factor into your divorce negotiations.
  • Loans payable to either party: For example, if one spouse loaned $20,000 to a family member during the course of the marriage, the money that the relative pays back is subject to division during settlement.

Contact the Experienced and Proven Family Law Lawyers at BKB Law Today

We represent individuals in many different types of matters that directly affect families and family units. We understand that there is a fine line between aggressive legal representation and the honest consideration of what is realistic and practical for families. Regardless of your situation, we pledge to protect our clients’ legal interests every step of the process.

For more than 30 years, our family law attorneys continue to successfully help individuals navigate the many legal issues that can arise with respect to all things family-law related. We understand that these times may be some of the most difficult experiences that our clients face. We never forget that this is more than just a legal case file to those we represent. The outcome of a mediation, trial, or negotiation session can change lives – our clients’ lives. We never take that for granted.

Please contact our Bonney Lake family law firm for more information on how we can assist you in your family law matters. Your initial consultation is complementary and you can discuss your case with one of our highly experienced Bonney Lake family law attorneys. You can also find more information on our FAQ page. We look forward to hearing from you and helping you with your case.

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