Divorce and the Financial Aspects of Spousal Support

Recently another collaborative lawyer and friend of mine, Lynn Bradley, and I went to Chicago to attend the 13th Annual Networking and Educational Forum which is the annual meeting of the International Academy of Collaborative Professionals. Over the four days I was there I concentrated on the financial aspects of divorce – especially the difficult issue of spousal support.

Fairness and Spousal Support

One of the workshops I attended was titled “Collaborative Conversations on Support and Fairness”.

Often in my collaborative work we leave spousal support to the end of the process so we can build up a foundation of a series of agreements, and also because a court will deal first with the property issues before support. The model presented in this workshop however suggested the support conversation begin early in the process, the clients being given homework after the first meeting of preparing their budgets.

These budgets should be divided into non-discretionary, or mandatory and discretionary or optional expenses. By looking at one’s expenses this way, hopefully a healthy discussion is promoted regarding what is really important to each of the parties in terms of what they spend. There a couple could probably agree on budget items as the mortgage payment, utilities and medicine but what about a weekly massage, 401K contributions, health club memberships? While one party might see having a weekly massage as an indulgence, the other might feel that it is a necessary expense for both physical and emotional reasons. The primary wage earner might consider 401K contributions as a non-discretionary expense while the other party sees it as reducing their joint funds in a way that won’t be of any benefit to him or her.

Talking about why one feels certain expenses have importance helps to release the tension that often surrounds the issue of spousal support and can be destructive to collaborative process. Developing an understanding of the financial needs of the other person beyond the obvious ones helps build a foundation for further understandings.

Also crucial to the development of an agreement on spousal support is to recognize the importance of a time line – a time line that has built in modifications as certain events occurs – the payor spouse retires, a child graduates from college, the husband or wife gets a law degree, etc. Another way to put it is that the spousal support commitment will be responsive to real life events. For the payor spouse it will afford a level of comfort in being able to anticipate his or her financial future.

The Role of a Financial Neutral

I also attended a workshop given by a certified financial planner who works as both a financial neutral in a divorce and as a business evaluator, thought not at the same time. While sometimes it is hard to justify the expense when money is limited, having a financial neutral can also ease the tension around the conversation regarding spousal support.

Although the process is “collaborative” there can be just as much distrust, especially around finances, as there is in a non-collaborative case. The financial collaborative neutral can be the one to get and analyse all of the financial data and get the parties comfortable with their finances no matter what they look like. The financial neutral may be able to help the parties come to terms about their finances in a way that never happened during the marriage. While an added expense, the financial neutral may actually be the most important person in the room.

In my practice I have only had a few cases where I’ve used a financial neutral. In one, the parties didn’t feel like they gained any insight into where they were financially and fell out over the husband’s spending $5,000 on a television set. I see now that if we’d approached spousal support by having the couple approach their budgets early in the process and look at what each thought was discretionary and what was non-discretionary we might have saved a case that ultimately failed.

The other time I used a financial neutral, the neutral literally took over from the lawyers and worked out of the meetings with the couple dealing with their expenses with the discretionary / non-discretionary approach. I think he was probably responsible for the ultimate success of the case.

Business Evaluations

The workshop on business evaluations was helpful if only for helping me to understand, not how they are conducted, but what questions to ask the clients. The important questions are do we need (want) an evaluation, is the business going to be sold as the selling price is ultimately the value, what is each party’s ownership interest, are both parties in the business, is it profitable.

Business evaluations can be really expensive. I have had a case where an evaluation cost over $40,000 so they can’t be approached lightly. In the end it is the clients who will decide whether it is worth doing but it our job as their lawyers to let them what it might cost and what they will have to do to facilitate the process.

Some evaluators only use balance sheets and tax information and never meet the clients, some think they must have a site visit of some length. In my own experience most cases skip the business evaluation deciding themselves what a business might be worth. I’m not comfortable with those decisions but my job was to advise them about why it is necessary and allow them to make the decision. I had one case where a doctor didn’t want his solo practice evaluated because he objected to having his privacy invaded and his wife really didn’t want the house she was getting because she thought it was worth more than a current assessment. They agreed happily to just treat the practice and the house as both being worth zero.

I think that by in large the time spent in Chicago – especially the day we played hooky and went to the Art Institute, was well worth the time and costs.

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