Simple Tools: The Financial Affidavit

Why, When and How to use your Finanical Affidavit.

The most important tool in your divorce is frequently the most over-looked, and avoided. Even its name is off-putting; but it is the key to understanding all of the other issues which arise. It is called (drumroll, please), “The Financial Affidavit” (yawn).

Frankly, most people should keep a current finanical affidavit available whether or not they are contemplating divorce. A financial affidavit is just a form that shows you how much you have in income, expenses, liabilities and assets. While these may sound like no-brainer questions, most people cannot accuratelty answer these questions off the top of their heads. Sometimes one member of a family knows all the answers and the other just relies on that person. Sometimes neither party can answer them. Rarely, but sometimes, both parties are very aware of all of the finances.

It is surprisingto me how often a client – or an opposing party – resists using the simple form available on the Judicial Branch websites of most states. It can be a little complicated the first time you look at it (for example, in Connecticut, you have to divide every monthly amount by 4.3 weeks). But the value of this tool far outweighs its inconvenience.

Here is a link to the CT “Long Form” to give you a sense of the questions it poses. https://jud.ct.gov/webforms/forms/FM006-LONG.pdf

WHY: Look, I hate to be the one to tell you, but divorces frequently come down to a set of financial decisions. After the child-rearing and emotional issues have been resolved, it is similar to a business transaction. People want to know: How much child support will I have to pay or receive? How much alimony? What portion of the debts and assets will be assigned to me? The answer to these basic and all-important questions is not a secret magical formula. It is a direct function of the information contained in your own personal finanical picture.

Simply put, better informed is better prepared. Building your own financial affidavit will likely compel you to ask questions and make some calculations that you never thought to ask. Questions like how much money do we spend on restaurants each week? How much equity is in our house right now? Do we have retirment accounts, and how much are they worth? Not only is this good information for the court. It is good information for you. If you are trying to imagine what a post-divorce future will look like, knowing your finanical picture can help define those scenarios. Picture knowing how much money you would have if you sold your house; how much disposable income you have right now; and what you are paying for health insurance each month. These are the questions people pay attorneys and financial consultants to help them figure out. And, ironicaly, you are the only one who can get them the information which unlocks these secrets!

WHEN: Early and often. If you bring a completed financial affidavit with you to your first meeting with your divorce attorney or mediator, you will save yourself time and money getting to the heart of what the case will entail. In most jurisdictions you will need to disclose the information within the first few weeks of any divorce action, and so will your spouse. So, why wait? Get the information to your attorney as soon as you can. The earlier your lawyer or mediator is informed about your case, the more accurate they can be in looking for an appropriate resolution.

FAQ: Why should I divulge my information to my spouse? Aren’t we going to be fighting about this? Shouldn’t I keep it a secret?

Answer: The court will compel you to share all information, anyway. Any knowledge which is not exchanged voluntarily is likely to come out on the witness stand – either in depostion or at trial – anyway. But, of course, voluntarily costs less time and money.

HOW: Despite the mysterious-sounding 4.3 weeks rule and all of the detail (weekly grooming costs!?), these forms are straightforward once you understand them. And, as with so many things, the internet has made the work easier than ever. Start by finding your most recent paystubs, tax returns, mortgage loan statement, and credit/debit card statements (these can be downloaded from your banking institution). These 4 sets of documents will provide you 80% of your necessary information. When you are ready to get started, set aside one hour of time. Supply yourself with one scratch copy of the form to work on and a blank copy to fill-in later, a sharpened pencil & eraser, a calculator, a note pad for jotting questions or doing calculations, and a tall glass of your favorite beverage. Preferably non-alcoholic, to cut down on mistakes. Then, start filling in the blanks. Any questions you still can’t answer, just make a note and move on.

Pro tip: On your first time through the form, use the figures as you find them. If your mortgage is a monthly amount; write it that way. If you spent a total of $5,000 on vacations last year; write it that way. Get your figures all in one place; convert it to weekly later.

Once your first draft is complete you have a choice – you can stop there and give the draft and your supporting documentation to a professional to complete for you. You have already saved yourself hours of professional fees by making a solid first draft. Or, you can go for it and convert the figures to weekly on your own. It is not so hard. Any monthly amount gets divided by 4.3. Any annual amount gets divided by 52. So, if you spent $5000 on vacations last year, you would put $96 as your weekly vacation budget. If your monthly mortgage loan payment is $2000, that’s $465 per week.

And now – here’s the icing on the cake… you have created your own financial snap shot! If you are not getting a divorce, you have a realistic budget to use when you plan for future events. If you are going through a divorce you now know what each of you should have when the smoke clears. Even if its not much, at least you know what it is!

What We Love: Divorce is an opportunity for growth. Taking charge of your life begins with understanding your finances and leads to your own empowerment.

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Don’t Take Your Ex’s Word for Everything

D-College-CostsI received a call this week from “Tony,” a fictitious name for a man I represented in 1998, when he and his first wife had a 3 year old son together.  He has been a generous and involved father to his child from that marriage for the entire 15 years since his divorce. He paid child support on time and in full even when he was diagnosed with Leukemia and had to take a medical leave of absence from his job for two years. He never missed a payment. In fact, he was never even late with a payment.  He has since remarried and has an 11 year old son with his current wife.

We’ll call the first son John and the second son Jacob.  John came on every vacation with Jacob and their dad and his wife.  John has played as many sports as Jacob, he has gone to as many ball games and concerts and family picnics with their dad as Jacob has.  The dad never lost his connection to John, never let the new family exclude John. John and Jacob know that they are half-brothers, but they feel that they are brothers.

In all his years of paying more than the court ordered by staying current with child support, and adding whatever extra-curricular activities he could, of making sure that John and Jacob both had health insurance, glasses, braces, cleats, and haircuts, Tony and his second wife always knew that once John turned 18, the child support payments would end.  The love, and care, of course, will never end.  But they were able to budget their lives knowing that in July of 2013, they would essentially get a pay increase.

Imagine Tony’s surprise, then, when he received a phone call in August from his ex-wife (let’s say “Tina”) telling him that he needed to start paying for John’s college tuition room and board.  Tony and Tina both have copies of the same divorce agreement they signed in 1998.  They both read the same words.  Tina saw it and read, “Tony has to pay one –half of full tuition, room and board at a state University.”  She figured that meant that if those costs are now about $12,000 per year, that it was time for Tony to start paying her $6,000 per year.  If John goes away to college, or stays home with her should not influence (in her interpretation) how much money Tony owes her.  She figured she could take $6000 from Tony, and have John take out student loans for anything else he needed.  She just saw that paragraph as another pay day for her.

Luckily, Tony called me.  I have to admit that I could not at first recall the specific language of the agreement.  When we discussed it by phone and he said that he was obligated to pay half of John’s college, I thought that might be true.  But I asked him to bring me a copy of the agreement anyway, so I could read it myself.  It seemed like a bigger commitment than Tony would have made.

I told him that because of his illness, if necessary we could move the court for a modification, but that is a last resort.  Remember, if Tony had to pay me to represent him in court, and Tina got an attorney, too, all of that money would be directed away from John’s education and into lawyer fees and court costs.  The worst possible scenario, if you ask me.

Sure enough, he brought me the signed agreement and court orders and as soon as I had a chance to read them, I could see the confusion.  The agreement is that both parties will help John get as much financial aid as he can get, and then the two parents will pay equal shares of what is left; but not more than the cost of a state college. If Tina pays $5000, Tony has an obligation to match it.  But if John only needs $5000 from his parents; then Tony is only responsible for half of that amount.   The best part, to me, and to Tony, is that none of this money will go to Tina.  John will continue to have his dad helping him get through life and do what he needs to do; but all of Tony’s money will be going directly to John’s benefit, not by way of Tina – and not to lawyers’ fees.

What We Love:  It is always worth having an attorney read a legal document for you.  It might cost you an hour of the lawyer’s time, but it could save you thousands of dollars in mistakes.

Getta’ loada’ THIS guy!

D-moneyI rarely do this, but – you think your ex (or soon-to-be-ex) is a jerk?  Getta’ loada’ THIS guy!

Mr. and Mrs.  “Michaels” were married while Mr. Michaels was finishing his education at a prominent New York law school.  Mrs. Michaels worked two jobs so they could afford a decent place to live while her husband started his own litigation firm and built a clientele.  After about 10 years of marriage, a decent nest egg accumulated, and a respectable law practice in full-swing, they moved to the suburbs and had a baby.  Mr. Michaels kept working, but moved his practice to the town where they lived.  Mrs. Michaels made child-rearing and house maintenance her new career.

Shortly after their son graduated high school, his father announced that he wanted a divorce.  He told his wife that if she cooperated with him, he would “always take care of her,” so she cooperated.  They sold the marital residence, and split the profit without her ever seeking any legal advice on her own.  She moved into a small apartment and put the rest of her share into a savings account, waiting for her husband to give her half of their retirement accounts and savings.

She took a job working in retail to make ends meet, because he never gave her any money at all and she needed to pay her rent.  When she would ask him about alimony for rent payments he would tell her that since they were still married he could not pay her alimony.  She should just pay her own bills to the best of her ability and he would pay her back once he settled their accounts.

18 months after they separated, Mr. Michaels called his wife and told her that they were “automatically divorced” by the laws of the state because they had been living apart for 18 months.  He further told her that there was no money left in their accounts, he had spent it all on his own needs, and furthermore she was making more than he was on their tax returns, so he would be looking for alimony from her.

I am not making this up. A bright articulate woman in her 50s walked into my office and asked me whether she was automatically divorced, what had happened to all of their money, and whether she would be responsible to pay her ex-husband-the-lawyer alimony from her minimum wage job. The answers are:  there is no such thing as an automatic divorce, I did not know where the money went but I was about to do my best to find out, and the circumstances would have to be pretty extreme for her to have to pay him alimony.

Here is what we found out.  He declares income of about $500 per week, and rent of $750 per week.  His restaurant charges alone are more than $500 per week.  He just doesn’t report any of it as income.  He has no credit cards or other debts, purchased a new motorcycle for himself over the summer, and goes on monthly vacations out of state.

Last time we went to court he told the judge that he could not defend himself against my motion for alimony because he is “indigent” and could not afford an attorney.  The judge looked as if she was about to give him some time to hire a lawyer when I interrupted. “Excuse me you honor, but the Plaintiff himself is an attorney,” I told her.  The courtroom full of people gasped and chuckled at his audacity, and we were given our hearing.

The fact that this woman wants to trust her husband is one thing.  He is a lawyer and she has spent almost 30 years trusting him.  But as soon as she began to understand that he is lying to her, and apparently trying to defraud the court and the IRS into the bargain, she was smart to get her own legal counsel.    There is an old saying, “Trust, but verify.”  It is okay to believe what people tell you, but there is no harm in making sure it is true, and a good lawyer is just the person to verify when things look sketchy.

WHAT WE LOVE:  Divorces have an objective discernible truth, and given the opportunity to look for it most judges will find it.

Are you Ready or Hesitant?

divorcecompromiseMarriage affords people certain benefits.  There are compromises and pay-offs that married people balance and weigh all of the time.  It might actually be impossible to spend decades living with another fully-functioning adult and never get on each others nerves.  We are talking about marriage between human beings, after all.

Divorce happens when those compromises no longer make sense.  When the cost/benefit analysis suddenly looks like all costs and no benefits to one or both of the parties.  If it is both parties, the divorce can go pretty smoothly.  If only one partner’s scale has tipped to one side, it can be a much more difficult time.

When one spouse has spent years feeling over-used and under-appreciated, the other partner probably has no idea – whether or not they have been told.  It is a very rare person who would intentionally take his or her spouse for granted with no thought of repercussion.  So, we frequently see one partner who is anxious to get out, and one who is completely blind-sided and dumb-founded.  Let’s call them “Ready,” and “Hesitant.”

Ready will frequently try to make any compromise imaginable, just to make the divorce happen sooner. Whereas Hesitant might feel self-deluded into thinking that with enough time and effort Ready’s mind will change and things can go back to “normal.”  Hesitant might ask to try couple’s counseling, vacations together, or a temporary separation.  And, while any of these suggestions just feel like a waste of time to Ready, Ready might agree in the hopes that it will lead to an eventual divorce.

An angry Hesitant might use the opposite approach. In an effort to stay locked into each others lives, Hesitant might want to find every reason in the world to fight.  People can fight over kids, custody, money, pets, assets, debts, and even whose fault it is that we are getting a divorce in the first place.

Hesitant tends to rack-up attorneys’ fees in an effort to prolong the process.  Ready tends to give away his or her rights in the hopes of getting it over and done quickly.  Neither approach results in the best possible outcome, because they are both making decisions with their emotions when logic would be a better guide.

So, how can Hesitant and Ready put their feelings aside and make the best decisions for themselves and their families?  There are many possible solutions.  Using a trusted advisor, such as a neutral mediator, a second-opinion attorney (also sometimes called “Review Counsel” because it is an attorney who reviews another lawyer’s work), a financial advisor or a therapist can help bring an objective opinion to the process.  Ambitious parties can do some of their own legal research on line and try to get a sense of what Judges in their jurisdiction typically order in cases like theirs.  Or, waiting a few months after the mandatory waiting period, just to make sure that everyone’s jets have cooled can sometimes have the surprise effect of turning Hesitant into Ready.

What We Love:  There is no state that mandates a time in which you must divorce.  Once you know where you are headed you can take as much time as necessary to make sure that everyone is making the most rational decisions they can make.

How much should your divorce cost you?

Smiley Face
Smiley Face (Photo credit: Wikipedia)

Getting along during the divorce process is a key factor to the rest of your life. By deciding not to fight during this critical juncture you can make long-term decisions based not on factors such as revenge, annoyance, hostility, or bankruptcy. Instead, amicable dissolutions afford participants the opportunity to envision a productive and happy future and create mutual decisions designed to lead to that future.

Our firm recently represented the Wife (call her Jane) in a contested divorce in which the parties depleted their savings account and had not reached any agreements. The Husband (Jerry) was reluctant to show Jane his bank and credit card statements, so we had to keep dragging everyone to court to demand more discovery. Jerry refused to relocate until Jane would agree to give him more than half of the value of the house.  They continued to live together and aggravate each other. Months went by and the only progress being made was how frequently the lawyers found themselves back in court. Eventually, their money spent, their anger with each other at an all-time high, and the lawyers’ fees continuing to grow, their house went into foreclosure.

Jerry and Jane continued to blame each other for the unfortunate turn of events and lost their house. They lost their home – a beautifully decorated 3 bedroom 2 bath house in the suburbs with a half acre of land  – to the bank.  Not because they could not work, but because they could not work together. Once the house was gone and the parties were living separately, there was not much left for them to fight about and the divorce resolved rather quickly after that – with each party taking a share of the mutual debts away with them.

It drives me crazy to see this outcome. Those people invested more money in their anger than in their future. By using whatever resources they had to fuel a divorce that did not need to be contested they each gave up on their own long-term happiness.

Picture a different scenario. One in which the parties realize that the house needs to be sold before they can each move on. They work together to put it on the market in as

House for sale - one of many in the district

good condition as they can get it; and then sell the house for a profit. The profit can then be divided between them. Much more simple.  And frugal!

A divorce like this can go from costing $40,000 for the contested version down to $5000 in an amicable split. What happens to the remaining $35,000? They pay off some debts and split the rest. They can each start their new lives with a nest egg and a smile; instead of the dual burdens of financial debt and emotional resentment.

How much should your divorce cost you? Two answers:

Financially: A little less than you can reasonably afford.

Emotionally: Absolutely nothing.

What We Love: Deciding in advance to control your own finances during a difficult transition.

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The Advantages of a Long-Distance Divorce

Royal Caribbean's Freedom of the Seas luxury c...
Image via Wikipedia

My client just left on a cruise.  Her kids are grown; her divorce is underway; and she does not want to sit here every day from now until the divorce date fighting over the nitty-gritty with her husband.  Nor should she.

She has empowered her financial advisor (who is a certified divorce mediator) to bargain on her behalf over the asset split.  She has retained a competent attorney (me) to make sure that the deal is fair and that the paperwork gets handled appropriately.  And she is “outie,” as they say.

Most of the costs people incur during the divorce process are by either one attorney or another (or both) spending countless hours analyzing every dollar and dime; every cause and effect; every coulda’ and shoulda’ and especially every woulda’ until both parties are angry and broke.

Now, I have a weekly email exchange with this woman, to let her know every thing is progressing as planned. If I have questions about any particular items, I send her the question. She contemplates it while she is staring out at a vast blue ocean, and gives me a well-thought-out reply. No ability to give knee-jerk reactions in this scenario.

Plus, she is not antagonizing her husband. He can be as angry (or sad, or happy) as he wants and she has no way of influencing it or being influenced by it.  The punishment motive has been stripped away from both of them, because there is no big emotional pay off.  Just a calm little email about where someone left a tax return form.

Not everyone is fortunate enough to have the time to take from work and cruise; or the resources to make sure any minor children are covered; or the money for a fancy cruise ship.  But, in a litigious divorce people take time from work for court hearings, attorney conferences, depositions, and sometimes just mental health days.  In a custody battle, people frequently lean on friends and relatives to pitch in and help out with the kids more often and more seriously than thy ever dreamed possible.  When a divorce goes to trial, 2 – or more – attorneys work for days and nights and weeks to prepare, billing the client the entire time. 

So, maybe when you tally both columns a cruise would end up using fewer resources than a litigated divorce.  And, which is even better, a cruise could result in two happier people at the end of the divorce. 

What We Love: Distance, time and perspective – three key elements to better decision making.