First, my thanks and credit to Ron Lieber who wrote an excellent article in the November 14, 2009 New York Times called Financial Decisions to Make as You Divorce.
A legal Black Hole is what people who choose divorce litigation can easily become sucked into. Money goes to attorneys, accountants, custody experts, process servers , even private investigators. As Mr. Lieber points out, people going through divorce often get swept up in the rage. Instead, their first step should be to sit down with a mediator and consider all of the issues in their divorce, such as how they will be able to financially support two households if there are children, health insurance, college education for the kids, preserving their good credit and taxes, to name a few issues. If they cannot agree on a roadmap for resolving these issues, the parties are still free to jump into the legal vortex, retain attorneys, and litigate in court.
Here’s a partial checklist to consider when beginning mediation:
1. CREDIT: Don’t cut off your nose to spite your face. Often, couples stop paying joint credit card bills or other legal obligations because they’ve simply stopped communicating with each other. This is more likely to occur when couples have square off with attorneys and have chosen the path of litigation or what often becomes mutually assured financial destruction. A mediator can help couples work out a plan for the payment of bills, so credit scores don’t get ruined.
2. HEALTH INSURANCE: If your spouse covers your health insurance, he/she probably won’t be able to continue to do so once the divorce is final. You can continue on your ex-spouses health insurance on COBRA, but the time period is limited. COBRA can be prohibitively expensive if you are already paying rent or a mortgage, even if you are receiving support from your ex spouse. In mediation, there are more possibilities to negotiate a settlement that will cover health insurance premiums. A mediator might even suggest using a neutral financial planner to assist the parties in this area and in developing a post-divorce financial plan.
3. COLLEGE EDUCATION FOR THE CHILDREN: Here in California, there is no requirement that parties pay for the college education of their children. However, parties may agree to set up college education accounts, such as 529 college plans, as part of their divorce agreement, which becomes a court order. Because mediation is generally at least two-thirds less expensive than litigation, parties who chose to mediate will likely have more money left over and available to establish a college education account for the child or children. Divorcing parents should not loose sight of their children’s long-term educational needs.
Divorce can be an emotional roller coaster, but there is a price to be paid for anger and failure to communicate, and that price can be very real in dollar terms. Indeed, divorce litigation is one of the few human experiences where anger trumps greed. Couples who choose to mediate can still have their own attorneys advising them along the way. However, they should make it clear to their attorneys that litigation is not an option and that they are committed to making the mediation process work. If you stay on track and stay committed to the mediation process, you will end up with a divorce agreement that will work.
Finally, I often have mediation clients ask me what happens if things change after their divorce agreement is entered by the court and becomes final. My answer is always the same: If there is a change of circumstance, for example a change in a parties financial situation, then both parties are free to return to mediation to work out a modification of their original divorce agreement. Mediation does not have to be a one time only process.