You will undoubtedly be swarmed with your own questions when you take the first step towards divorce, which could include custody, visitation, but also finances. This podcast aims to help answer some of these common questions in regards to your finances, and to help us we have Diana Nolin and Sarah Schuler. Dianne is a CFP with over 25 years of experience, and Sarah is an experienced practitioner of many aspects of family law in the Northern Virginia area.
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Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Dianne Nolin and Sarah Schuler
Dianne Nolin from Blisk Financial Group in McLean, Virginia and Sara Schuler from the Law Office of Sara Leiner Schuler in Fairfax, Virginia. With Blisk Financial since 1994, Dianne strives to simplify the complex planning issues of executives, retirees, widows, and divorcees. Sara represents clients in the Collaborative Divorce process, a voluntary team-based approach in which a couple chooses to divorce without contested litigation to best meet their respective individual needs and the needs of any minor children. For more information about how Dianne can guide you through the financial aspects of divorce, please visit her website at www.bliskfinancialgroup.com.
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Read the Transcript of this Podcast Below.
Sarah, let me start by asking what are the most common questions you’re asked when you first meet a client?
First and foremost the client wants to know what’s going to happen now. And I tell them that the first step is either to reach out to the opposing counsel or the opposing party if they’re not represented and let them know that the client is retained me and wishes to work things out, which will begin to engage the other side in the process. Then we can move to direct settlement negotiations, mediation or collaborative law, which is a voluntary team based approach, in which a couple chooses to divorce without contested litigation to best meet the respective individual needs and the needs of any minor children.
There are cases where you go straight to litigation for various reasons, one being that you need immediate relief from the court and it’s unlikely that you will get the request of relief by going directly to the opposing party. One example might be if someone needs financial support right away due to their spouse completely cutting them off from access to any financial resources. There are also non financial reasons, such as seeking a protective order due to violence in the home or seeking an emergency custody order.
Another common question is if the other party is the one needing the marriage, what does that mean for financial support? The judge is going to consider 13 factors when determining spousal support. And where there are certain instances when a spouse may be barred from receiving spousal support, generally support is based on respective obligations, needs and financial resources of the parties. However since every case is different, it’s very important that you speak to an attorney about spousal support if it is an issue in your case.
Another common question, is if an asset is in my full name or my spouse’s full name, does it still get divided? Regardless of how an asset might be titled, if it was funded with money that either spouse earned during the marriage, unless there’s a prenuptial agreement that provides otherwise, the asset is likely marital and subject to equitable distribution. This would apply to a bank account, retirement benefits, real estate or any other asset obtained during the marriage. If an asset was obtained by a gift from a third party, inheritance or a result of a separate asset, for example something that you owned prior to the marriage to which you have not contributed any marital efforts, then it would likely be considered to be separate property, not subject to division by the court.
Speaking as a financial expert, what are the most common questions that you’re asked by a divorcing client?
Well Sarah I get a number of questions about assets and resources.But one of the questions I receive when a client comes to me and perhaps did not come by way of a referral by their attorney, is do I need an attorney? And in every situation I advise them that they should seek the help of an attorney. Not only the help of an attorney but one that focuses on family law specifically. There are long term consequences that relate to their money and their property and their family and this is not a time to try to go it alone. As it relates to property, I like to ensure that nothing is overlooked. So, we start from a firm understanding of a client’s financial picture, looking at their retirement assets, their marital home, a discussion about what is marital versus separate property and then we get a firm understanding of their current budget and what it may look like after the divorce is final. I work with them to create a new budget. Maybe they’re going to need to have new expenses, child care as an example if one party is going back to work.
I like to review what I call a lifestyle analysis and determine what it is they need to meet their expenses on a day to day basis but also longer term, how will they save for retirement? What will they do differently with their finances now that assets and the family are divided? And finally we’ll take a look at support and the impact of spousal support on the situation, the length of support, the amount of support and the impact that’s going to have on the family’s finances.
Dianne, how do you help clients understand the financial aspects of divorce during the process?
As I said I want to help them understand, a very clear understanding of their future financial picture. But while we’re going through the property settlement I like to explain that a dollar isn’t a dollar. There are differences. A dollar in a retirement in your retirement account is different than a dollar in your bank account. A dollar of equity in your home is different than the money that’s in your retirement account. So, we talk about where the resources are that are marital, how they might be divided and very importantly, what are the tax consequences related to receiving that asset?
If it’s the marital property, if it’s the primary residence, it may be the consequences of keeping the home versus the tax benefits enjoyed by two parties when selling a home. If it’s retirement assets it could be an understanding of the present value of what may be a benefit off in the future, like a pension plan or a corporate retirement plan. So, part of the education is an understanding of what each dollar represents and the tax consequence related to it. But also an understanding of present value and the offset of receiving assets instead of support.
Sarah, as a lawyer, what do you do to educate and prepare your clients for the divorce process?
I educate them on the potential results they may see in court, which can help guide them on how they may want to settle their individual case. I also explained the various costs, litigation is most often more expensive than settlement discussions, mediation and the collaborative process. I also put them in touch with specialists, such as financial planners who will help them with how much they need to live their budget, what they can afford, their new financial situation. They may have control of less money, they may have control of more money and how they’re going to invest that money.
Sarah, what are some common concerns regarding the marital residence during divorce?
When the parties separate, one person may be moving out during the pendency of the divorce, they need to determine how will the expenses be paid, who’s going to pay what. Once you separate it can be difficult to maintain two households at the same level with the same amount of income coming in. You also have to consider the mortgage. Sometimes parties decide if they want to both decide to stay on the mortgage, which may be good for the parties staying in the home but it may not be good for the party who has left the home and it may be the best option to sell the marital residents.
Dianne, can you tell us about some common financial issues you see regarding the marital residence?
Well, like Sarah I agree there are scenarios that may favour one party over another. I would say I also hear that there’s an emotional attachment to the marital home. Often times it’s educating about the practicality of keeping the marital home. It’s the largest asset, in many cases, and it’s the largest asset of the marriage. There’s equity that’s tied up in the home. And as Sarah said, this equity may need to be divided and if that’s the case it could involve one party staying, refinancing and getting a new mortgage. If that’s the case we have to evaluate whether they can afford to buy the other party out. If there aren’t other assets would they even qualify for the larger mortgage that might be required to buy out the other party?
And again we talk through the opportunity when selling a house jointly there’s $500,000 exemption from capital gains. And if this is a highly appreciated home, there may be an opportunity lost if one party stays and sells later because their exemption as an individual is only $250,000. So, we have to look at the fact that what one party may receive is only equity and if all of their marital assets are tied up in equity in the home, that may not be advantageous.
Sarah, does a family lawyer still have a role to play after the divorce is final?
After the divorce is final I am there for issues of modification of support or custody or enforcement in the event that someone breaches the terms of the agreement or the final order of divorce.
Dianne can you tell us how financial professionals help clients after a divorce is final?
Sure. Aside from practically helping with some property division, helping those parties divide the assets as agreed to in the property settlement agreement, I may likely help one party with their new financial picture. That might be everything from maximizing what they received in marital assets, taking a look at the long term consequences of the decisions that were made, considering some alternatives to managing their cash flow.
It’s one of the most stressful life events that a person will go through. I think it’s critical to review at this point the big picture, the long term consequences. At this point too I may introduce new resources, one party may need a CPA or need to update their estate plan. Perhaps they need access to a good mortgage lender. So, I like to be a resource to my clients after the divorce to get them on good financial footing.