CHAPTER [18]

DIVIDING ASSETS (INSTEAD OF DESTROYING THEM)

The traditional divorce process often diminishes or destroys the very assets the parties are vying for.

Let’s face it: Divorce is costly enough without the extortionate lawyers’ fees. According to a study by an Ohio State University researcher, a person who marries (and stays married) accumulates nearly twice as much personal wealth as his or her single or divorced counterparts.

The same study found that divorce costs a lot more than giving up half of everything you own. During a divorce, people lose, on average, three-fourths of their personal net worth.

So the question is, how can you minimize the loss?

Be smart. Be pragmatic. And be greedy. Keeping your family’s assets in the family is hardly a crime. The attitude Western society has cultivated—that we should expect third-party representatives to pocket a sizable portion of our divorce settlements—is warped and misguided.

The long and bitter battles engendered by the traditional system of divorce destroy wealth in three ways:

1. There are the hard costs associated with divorce: legal fees, property valuations, third-party assessments, and so on.

2. The devaluation of assets as they remain tied up until a final resolution is reached is a cost for which many people fail to account, yet it can be one of the most significant. Consider, for example, an investment portfolio that cannot divest itself of certain stocks in anticipation of a market decrease or a major drop in a particular stock. Or a business that cannot tap into its cash reserves to take advantage of a potentially lucrative, once-in-a-lifetime opportunity all because bank accounts have been frozen or other restrictions have limited the parties’ ability to work with assets during the legal battle.

3. The value of assets may diminish through neglect as the responsible party’s attention is consumed by the legal chaos surrounding the divorce.

During my divorce, for example, my business suffered terribly: Our customer service was deteriorating, dissatisfied clients were taking their business elsewhere, and staff morale was in the toilet. With my attention focused almost solely on the breakdown of my marriage, I simply couldn’t give the business the time and energy it required to prosper and thrive. Such distractedness is hardly conducive to increasing the value of assets. Even low-conflict divorce cases take the parties’ efforts away from work and asset growth. In most cases, the very best to be hoped for is preservation of the value of assets.

I have spoken to so many people who underestimated the power of lawyers to restrict the positive continuance of a business, all under the pretense of protecting the assets for their clients. As I discovered firsthand, this can be one of the biggest costs a divorcing couple may face. And at the end of the day, even if the business is your spouse’s, it usually forms part of the matrimonial pie.

A wise lawyer I know describes divorce as a zero-sum game. “It’s not a win-win or even a win-lose. It’s merely a matter of who loses most and who loses least.”

What a scary arena to enter! Yet looking back, he was bang on. Tom and I both lost. It’s impossible to say who lost the most, but I can say with 100-percent certainty that neither of us won.

The Fairway Divorce Solutions model is rooted in practices accepted by professional financial planners and certified divorce financial analysts (CDFAs), who can help people understand the financial implications of different settlement scenarios and make educated decisions regarding financial settlements, valuing and dividing property, alimony, child support, pensions, and tax issues.

If you feel you’re financially savvy enough to dispense with such assistance, tread carefully. Even if you’re well versed with numbers, don’t underestimate the power of emotion to obliterate your objectivity and your common sense. Seeing your situation clearly can be difficult when you’re bogged down in the emotional fallout of your own divorce.

For a perfect example, look at me. As an MBA and owner of a financial services company, I’m very astute when it comes to financial matters. Yet during my divorce I couldn’t see the forest for the trees, and I made some surprisingly bad decisions. An objective perspective from someone with no emotional attachment to my case or its outcome would have been invaluable either to confirm what I already believed or to challenge me to look at things from an altogether different angle.

The Fairway Process takes a long-term view of things, helping clients negotiate resolutions that will serve their financial best interests far into the future.

If you find yourself stuck in the traditional system because your spouse isn’t open to alternatives, you’d be very prudent to seek the services of a well-qualified financial planner or an accredited CDFA. Either can help in the following ways:

• Providing forecasts and feedback about possible settlement scenarios

• Showing you how various settlements will translate into future financial positions

• Providing you with a measure of certainty and hope in an otherwise uncertain, sometimes hopeless situation

• Helping you define boundaries (what you’re willing to accept and what you’re prepared to fight for)

• Comparing the long-term differences between your and your spouse’s financial pictures based on different settlement scenarios

This final point is very powerful. Often, distant-future projections reveal epic differences between the financial pictures for the two parties.

Generally speaking, North American women tend to receive less favorable financial outcomes than their ex-husbands for a couple of reasons.

First, the woman from a divorcing couple most often ends up with the children, which increases her daily living expenses.

Second, a woman who has sacrificed her career to raise a family often gets shortchanged by the system. Even if the courts account for the woman’s indispensable role when dividing up the family’s assets, the ex-husband will have had much more time and opportunity to advance his career. So as life after divorce begins, ex-wife and ex-husband will be starting from dramatically different footings. When the starting pistol sounds, the husband may have a 20-year head start, while the woman may still be tying her shoes in the locker room.

Staying home and raising children is a tough job, one that is still undervalued by society at large. As gender roles slowly evolve and men play increasingly prominent roles in raising children, the system may eventually arrive at a place of fairness, where the nurturing of children is worth as much as biweekly deposits into the family’s bank accounts. Each party deserves credit for his or her unique contributions to the family unit.

I can also empathize with the other perspective: You spent many years busting your butt to build a business and now it becomes just another bargaining chip. Still, if the negotiating process is sound, a win-win is always possible. That is the art of achieving a good outcome.

Especially in cases like these, where disparity exists between a couple’s relative financial contributions, projections of the financial future are a must. Traditionally, they have not been done nearly enough, though this is changing thanks to organizations like the Institute for Divorce Financial Analysts.

In divorce, division of assets is unavoidable, but they needn’t be destroyed in the process. Fairway Divorce Solutions advocates a strategic approach to resolution that empowers people in the decision-making process and maximizes the assets each party receives. It achieves this through the following:

• Employing a clearly defined, step-by-step methodology

• Analyzing and assessing the short-term and long-term financial implications of a party’s asset division options

• Accommodating the ability to create and choose a division of assets that satisfies the needs of all parties going forward

• Coming up with a plan that does not disempower the care provider (if one party was the primary breadwinner)

• Allowing both parties to be self-sufficient if at all possible (mutual personal empowerment)

• Ensuring children’s lives can move forward in positive ways, with a bare minimum of loss

Importantly, in this approach, both parties accept the plan at the outset and agree to stick to it through to resolution, which is clearly in sight every step of the way.

Throughout this proactive process, both parties take part in the decision making without the malice and threats that permeate the traditional system of divorce. Yes, emotions will run high, people will yell, and greed will try its hardest to infiltrate the negotiations. But even with all the emotional baggage, it’s possible to move quickly to a positive win-win outcome. You need to be relentless in your commitment to making it happen.

A fair approach to divorce keeps a whole lot of unnecessary (and unwelcome) fingers out of your family’s asset pie.