Sunday, September 30, 2007

How to Avoid Financial Mistakes in Divorce

There was a nice story in Forbes in February 2005 entitled "Top Financial Divorce Mistakes". It listed 9 common mistakes and how to avoid them. The list is actually a good example of why Collaborative Law can really be beneficial. Here's the list with a commentary showing how Collaborative Law fits in.

1. Having unrealistic expectations. That's actually a very serious problem which can sabotage a Collaborative case (just like it does a regular litigated case). If both attorneys, and any other professionals involved, can spot such expectations at the outset, disaster can be avoided, if the party is willing to listen to reason. The case should not be handled Collaboratively if one or both parties have unreasonable goals. One of the good things about Collaborative Law is that the goals and expectations are explicitly discussed at the outset, so there is time for re-orientation or changing approaches. There is a greater chance of uncovering unrealistic thinking by using the Collaborative approach since the expectations are openly discussed at the outset.

2. Not communicating. It is impossible to not communicate with your attorney or spouse in Collaborative Law. There are discussions before and after joint meetings and many cases utilize a mental health professional (MHP) to facilitate communication.

3. Getting into an endless battle. Collaborative law focuses on the future and not on revisiting past battles and issues. An MHP can help both parties avoid re-engaging in old arguments and to stay on track focusing on their goals.

4. Getting hung up on the numbers. One of the key elements of Collaborative Law is interest-based negotiating, rather than positional bargaining that is common in the litigation approach. Parties in litigation often do get hung up on numbers and percentages. In Collaborative Law, the parties work to achieve their goals and strive to create customized solutions to problems where the numbers are secondary.

5. Focusing on the present and not on the future. Using a neutral financial professional (FP), it is possible to understand the present situation, but a sometimes greater benefit is being able to project out into the future, both in terms of your needs and in terms of various means of meeting those needs. The FP is an expert at analyzing the future needs of the parties and can help educate the parties about the opportunities available that are consistent with their goals.

6. Forgetting to assess tax. With a financial professional in the case, it is standard to consider the tax consequences of any alternatives under discussion, something that is not often done in litigated cases.

7. Overlooking important information. The financial professional will make sure the parties provide all necessary financial information and understand it. There is rarely such a person working in a litigated case. A Collaborative case using a neutral FP results in a better analysis of the parties' financial situation.

8. Failing to untangle all joint finances. The parties can have direct discussions to address issues of joint finances and will have the benefit of two attorneys, a financial professional and sometimes a mental health professional who will help them decide whether or not to keep financial ties intact.

9. Failing to take into account the amount of time you'll need to get your career back on track. That is a topic that would ordinarily be directly addressed by the parties, their attorneys, the financial professional and perhaps the mental health professional. In addition, the parties may set up a plan for training and support to cover the likely period of time for re-adjustment into the work force. With Collaborative Law and the team working together, there is a much greater chance of direct action being taken to benefit the spouse who has been out of the workforce.

The Forbes article pointed out some significant and fairly common problems that occur in litigated divorces. They illustrate some of the many reasons why Collaborative Law often is the better option for divorces.

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