Divorce has such dramatic potential, it’s practically its own cinematic genre. The most recent example is last year’s Oscar-nominated Marriage Story. Other films that depict divorce at its nastiest: Kramer vs. Kramer (starring Meryl Streep and Dustin Hoffman), Danny DeVito’s War of the Roses and Ingmar Bergman’s Scenes from a Marriage.
Like those movie couples, real-life divorcing couples often make a potentially traumatic ordeal even worse by turning it into a standoff and often, a zero-sum game. Although there will probably never be a movie made about a less-contentious and more cost-effective alternative to these high-profile divorce cases, there is a better way.
What is a collaborative divorce?
In a collaborative divorce, spouses who are splitting up agree to stay out of the courtroom. Lawyers who are certified in collaborative divorce can assemble a team that may include a Certified Divorce Financial Analyst® or CERTIFIED FINANCIAL PLANNER™ Professional, a divorce “coach” who is a mental health professional and a child psychologist if young kids are involved.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Each spouse still has his or her own attorney. But crucially, while the lawyers are still advocates for their clients, they are not adversaries to each other; everyone’s on the same team. The rest of the team is neutral, objective and looking at the big picture.
Even with those specialists assembled, you still spend a fraction of what you would in litigation. And you retain control over timing and decision-making. You have more options for short- and long-term financial planning.
When you litigate, you’re at the mercy of the court. You’re on their schedule. You can move at your pace when you opt for a collaborative divorce.
This type of low-drama divorce has even more benefits:
- It’s more efficient. (You and your spouse pay less in fees.)
- You’re in the director’s chair. Leaving your financial future up to a judge is a more passive approach. Where your money is concerned, wouldn’t you rather retain control?
- It aims for a healthy and fair split. Both parties agree to transparency and begin by signing a collaborative law agreement and pledging not to go to court. Both parties agree on which documents or information should be shared. (If each of you is conducting separate investigations into the other’s finances, it’s costing you both — double, even triple!)
- It does not involve the airing of dirty laundry in a courtroom or on public written record.
- A therapist/divorce coach ensures everyone is heard and that both parties’ emotional needs are met.
Prepare for the long haul
Getting over divorce — emotionally — takes time. Financially recovering from divorce does, too. Even in the best-case scenario, both former spouses are walking away with less than they had as a married couple.
I encourage my clients to have a long-term mindset about rebuilding wealth or paying off debt. Some financial planners say it could take two to four years to recoup the money lost in a divorce.
Having a no-court divorce sets you up faster for what comes next. The less hostile your divorce, the more emotionally ready you are for post-divorce life. The less expensive your divorce, the more of a nest egg you’ll have to start that new life.
Tax planning is an important part of divorce. Did you know alimony is no longer taxable to the person receiving it or a deduction to person paying it? A tax adviser can help figure out what that means in your case. Sometimes the unthinkable — bankruptcy — has to be considered as a financial planning tool. Other considerations:
- How old are you? How close are you to retirement? How soon do you need to begin drawing down retirement savings?
- Who keeps the house, or do you sell it? If you keep it, is it better to pay it off in a hurry or pay it off slowly over time?
- Does mortgage interest make that much of a difference?
- Is now a good time to downsize?
- In reviewing your finances, look at both your credit reports, and get answers to the following questions: What is titled in your name versus your spouse’s name? What accounts do you own together and jointly? Whose name is on the children’s 529 college savings plans? Where’s the safe deposit box?
- If you had been staying at home during your marriage, will you have to return to work?
Returning to work is often a scary proposition for those who haven’t worked in years — or even decades. But it may be essential in order to build your savings back up. You can make a dent in paying off debt — or rebuild your savings — even with a job that’s outside your training and career history. Don’t underestimate the power of a small, but steady, paycheck. And consider the benefits packages offered if you return to work. For example, Starbucks offers health care benefits even for part-time employees and may offer tuition reimbursement as well.
Take ownership of your own finances
If you’ve been the spouse who was less (or not at all) involved in the family finances, now’s the time to step up. When people are involved in their family finances, they recover more quickly after divorce, according to a 2020 “Divorce and Money” study by Fidelity Investments.
“Take ownership” does not mean you should go it alone and go to court. The study also suggests that “mutual engagement” is key to a “successful divorce.” Both parties should be equally involved in uncoupling — and that includes separating the finances.
If you haven’t before, begin to track household expenses. Are there areas where you might tighten up? Pay attention to details, tracking not just purchases by merchant, but by what was purchased.
Not every real-life love story has a fairytale ending. But divorce doesn’t have to be acrimonious. Your marriage story may be unlike the rom-com movie you originally envisioned, but you get to write your own sequel. And it could be a smash hit.
-
What Happens Financially When You Work One More Year?The impact of saving more, spending less later and benefiting from an extra year or more of compounding can be truly staggering.
-
Seven Ways to Spend Your Tax RefundYou may want to splurge, but using your tax refund to save for the future or pay down debt is a much better idea — even if not as fun.
-
What Happens Financially When You Work One More Year?
The impact of saving more, spending less later and benefiting from an extra year or more of compounding can be truly staggering.
-
Three Ways to Give to Your Kids Tax-Free While You’re Still AliveParents can see the positive impact of their giving through tax arbitrage, giving cash (within limits) or directly paying for school or medical expenses.
-
Your Kids' Tax Brackets Could Lead to Unequal InheritancesSometimes, divvying things up equally means one child might end up with less because of tax implications. Here’s how to avoid that.
-
11 Truths That All Investors Must AcceptGetting rich quick and seeing regular returns in the mid-teens are just two unrealistic expectations of inexperienced investors. Read on for nine more.
-
Traditional Retirement Accounts or Roth? How to ChooseLet’s compare traditional IRAs, traditional 401(k)s, Roth IRAs and Roth 401(k)s. Which might work best for you could depend on your income and tax status.
-
Should You Opt for an Older or Younger Financial Adviser?Do you want the wisdom that comes with age or the innovation that comes with youth? Or maybe you can have both, with an advisory team.
-
Revocable Trusts: The Most Common Trusts in Estate PlanningRevocable trusts allow the trust maker complete control over the assets and can be quite efficient when it comes to capital gains and income taxes.
-
How Your Financial Institution Can Help You Dig Out of DebtHigh interest rates and inflation have helped add to Americans’ credit card debt. Your bank or credit union might be able to help you dig out.
