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How to avoid common divorce financial mistakes, and other frequently asked questions

Divorce's financial impact on women

Facing a divorce? Answers to financial questions

How Bedrock Divorce Advisors helps women secure their financial future


Divorce's financial impact on women

Q. How much can divorce financially impact a woman?

A. Divorce tends to damage women financially far more than men.

A study by Columbia University and Indiana University professors found that in the wake of a divorce, income drops 26% in households headed by women compared to 15% for households headed by men.

The negative effect can reach far into the future. Women who've been out of the workforce for many years or earn substantially less than their husbands often find their post-divorce expenses greatly exceed their income. The result? They start liquidating assets soon after the divorce in order to maintain anything close to the lifestyle they had while married.

This means the chances are very high they'll run out of money in the future. And it gets worse: many women are forced to liquidate retirement plans during divorce proceedings to pay for legal and other expenses. Because women live 5-7 years longer than men, less money now has to be stretched over a longer period.

On the other hand, husbands earning substantially more than their wives are often able to rebuild their assets after divorce, including their retirement savings. This is why many women find themselves in dire financial straits after a divorce, while their ex-husbands, whose earning power is unaffected or increasing, are doing more than fine.

The job of your Bedrock Divorce Financial Strategist™ is to first determine the actual expenses you and your husband incurred to support your marital lifestyle. (They're often higher than you might think.) We'll then use the results of that Lifestyle Analysis, along with tax and other financial projections, to calculate exactly how long your money will last based on various divorce settlement proposals.

Using our projections, you and your divorce attorney will be better equipped to negotiate a settlement that gives you long-term financial security and allows you to maintain a lifestyle that's somewhat comparable to the way you lived during your marriage.

Q. How much can divorce financially impact an affluent woman?

A. Affluent women often stand to lose the most in a divorce. Many well-to-do women own businesses: firms that suddenly become an asset to be divided or liquidated by order of the divorce judge. And the assets of an affluent couple tend to be much more complicated than those of others, making it very difficult for divorce attorneys and judges to accurately value and divide them in a way that's truly fair to the woman.

This complex area of divorce finance is our specialty.

Q. Why would I only be able to maintain a lifestyle "somewhat comparable" to my married lifestyle?

A. Even in high net worth divorces, the costs of maintaining two separate households are more expensive than maintaining just one. And if the woman has to make her share of the assets last for decades, she may have to tweak her lifestyle choices—perhaps by purchasing a smaller home or one in a less expensive area, adjusting her shopping habits, and the like.

The goal is to maintain a similar lifestyle while making your assets last, securing your long-term financial well-being.

Q. What are some of the financial tactics used by husbands during a divorce?

A. While not all divorces are bitter battles—some are relatively amicable, and the vast majority are settled outside the courts-we've unfortunately seen quite a few underhanded financial and legal tactics employed by husbands or their divorce teams.

One common tactic is stalling and delaying court hearings or the excessive use of motions and requests for evidence with the sole intent of driving up a woman's legal costs and stretching out the time during which she must cover living expenses. In these cases the husband hopes she'll run out of money and be forced to agree to his settlement offer, which is too often extremely unfavorable to her.

Another common ploy takes advantage of women who haven't been involved with the family finances: the husband ensures that only he can access family funds, cuts his wife's credit cards off, or moves funds out of family accounts in advance of the divorce, leaving his wife without the money necessary even to buy groceries, much less hire the right divorce team to represent her... while he hires an excellent team to represent him.

This is especially problematic for abused women who live in constant fear of harm—to themselves or their children.

Because of these tactics, we constantly recommend that women maintain their own emergency fund in a separate bank account, even if divorce has never entered their minds. (We've known far too many women who were blindsided by a husband's request for a divorce seemingly out of the blue; in fact, we created our one-hour Just in Case™: Secure Your Financial Future session purely due to this all-too-common phenomenon.)

We've also seen husbands hide assets or income in an attempt to wangle a reduced divorce settlement or alimony order, particularly in cases where the husband owns a business or private practice. Often this will come to light while we're conducting our Lifestyle Analysis, and at times we've brought in valuation experts to verify asset value claims or forensic accountants who specialize in uncovering hidden assets on behalf of our clients.

And then there are the breadwinning husbands who fail to pay court-ordered support or refuse to relinquish assets, leaving their wives to try to extract the promised payments at considerable legal cost long after the divorce is over. Sadly, many family courts do a poor job enforcing such orders, even when a woman follows its requirements to the letter... and even for a well-meaning judge, deception on the part of an ex-husband can be difficult to decipher or prove.

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Facing a divorce? Financial questions we're often asked

Q. What is alimony?

A. Alimony, also known as maintenance or spousal support, is a "moneyed" spouse's court-ordered obligation to provide a certain amount of monthly financial support to the "non-moneyed" spouse upon divorce. It's designed to provide the spouse with the lower income or no income with funds for living expenses outside of child support, a separate legal obligation.

The amount and duration of these payments depends on the laws of your state and the discretion of the divorce judge, who may consider multiple factors when deciding whether to grant alimony.

Q. Will I receive enough alimony to allow me to maintain my lifestyle after the divorce?

A. It depends. Your marital lifestyle is one of the most important factors a divorce judge is likely to use in determining an alimony award; that's why our Lifestyle Analysis is so important.

Other factors commonly considered by a divorce judge in an alimony decision include the length of your marriage, income earned by you and your husband in the past and your ability to earn money in the future, your ages and health, and the division of assets, among others.

We specialize in analyzing proposed divorce settlements where these and other complex financial factors may interact, with the goal of enabling a woman's divorce attorney to negotiate the most financially advantageous alimony for her.

Q. When is alimony deserved?

A. If you've been in a long-term marriage during which you've been out of the workforce for decades or had an income substantially less than your husband's, it is our opinion that alimony is needed and deserved.

Despite the current reform movement against long-term alimony that is understandable on some points, we continue to strongly believe that alimony is deserved in these cases.

Often a woman sacrifices her own educational and career opportunities to invest her time and labor for the betterment of her family...and by taking responsibility for the household matters, she aids her husband's career, enabling him to invest his time and effort in job opportunities and ways to increase his earning power. Many women, too, help their husbands complete law school, medical school, or other training, whether financially or otherwise.

Unfortunately, many marriages end when the husband is at or near the peak of his earning potential, thanks in part to his wife. At the same time, due to the sacrifice of her educational and career opportunities, she may be unemployable with the possible exception of relatively low-paying jobs. (Alimony may also be deserved in shorter term marriages and for younger women, though in those cases the alimony may be more short-lived.)

Q. Why don't these women just go back to school and then find a job?

A. It can seem simple at first glance! But if you think about it, the idea that an older adult could go back to school and then, with very little experience in her new field, find a position that would allow her to afford the lifestyle of someone in their peak earning years isn't realistic.

Earning a degree takes time and money, as does working one's way up the career ladder.

Even when the economy is healthy, it's not easy for older women in particular to land a good position. The current economic climate makes the task even more difficult. Recent research shows unmarried women now experience high and extended unemployment, as well as underemployment, with older unmarried women facing these in greater numbers.

(Also see the US Senate's "Older Women and Employment: Facts and Myths" PDF report; while published in 1991, recent statistics shows the trend holds true.)

Q. Can't the division of assets make up the difference?

A. It's not likely. Here's why: even if a couple divides all assets 50/50, over time a breadwinning husband is likely to be able to replace the assets he gave up due to his greater earning power. A wife in the above situation lacks that earning power, often dramatically so. As a result, she's likely to experience the opposite: rather than replacing the assets she gave up, she's forced to liquidate her remaining assets in order to maintain anything close to her pre-divorce lifestyle.

The more she liquidates, the more her net worth drops. Less is left to sell. If market conditions aren't favorable, too, she may have to liquidate these assets at below-market prices.

Alimony helps to somewhat equalize this economic disparity.

Q. What's the best way to receive alimony?

A. Every woman's situation varies, but we commonly recommend that our clients take an upfront lump sum payment in lieu of alimony paid each month, regardless of whether the divorce is amicable. (We encourage you to contact us to make certain that's the case in your situation as well.)

Why? For one thing, the future is uncertain. Your alimony payments also depend on your former husband being alive and well enough to make them. If you outlive him or an illness or injury renders him unable to work, that could be a significant problem.

Consider, too: what may seem like a secure and high-paying position for your former husband may suddenly fall through. In the current economy, it's feared many recently unemployed older workers will never work again, and certainly far too many professionals accustomed to comfortable salaries and perks are finding themselves forced to accept positions paying a fraction of what they previously made, cutting down their long-term salary prospects as well.

If this is the case with your former husband, what will happen to your future alimony payments? Alimony payments can be modified by a judge if she agrees your ex-husband can no longer afford the current amount.

It's also not uncommon for a business owner to alter the books or intentionally destroy his business in order to reduce or eliminate alimony. And we've seen many ex-husbands take their former wives back to court in endless campaigns to modify alimony payments. Not only is this expensive and time-consuming for these women, but it can put their jobs in jeopardy. This is especially prevalent in cases of domestic abuse, where the ex-husband attempts to continue his control and abuse through the court system.

Then, too, there's the issue of whether alimony (or child support) payments are actually being made. Enforcement of a court order can take more time than you'd like and in some cases may not even be possible.

A lump sum payment in lieu of alimony can solve or alleviate many of these problems. Such a lump sum cannot be modified later, and once you have it, you need not worry about your ex-husband's luck or underhanded tactics in the future.

This said, a large lump sum payment requires careful financial management in order to sustain your lifestyle over the long-term. If you have a history of mismanaging or overspending, a lump sum payment is not likely to be the best solution for you; if that's the case, we'll recommend an alternative for you.

A lump sum payment is also only possible if there are sufficient assets available during the divorce. If not, we may recommend an alternative such as a Section 682 alimony and maintenance trust for you.

Q. What if I have to pay alimony?

A. This does happen, particularly in cases where the woman is the higher income earner in the marriage. If this is your situation, we'll work with you to investigate ways to reduce or mitigate the alimony amount ordered, in part by verifying your husband's expenses during our Lifestyle Analysis. If you own a business or professional practice, we'll also work to protect your ownership position.

Q. How will our assets be divided?

A. This is a complex question even in an amenable divorce, and particularly so for affluent women.

First, many states often differ in how they define separate and marital property. Separate property typically stays with the spouse who owned it prior to the marriage or received it from a third party as a gift or inheritance... but there are many ways separate property can inadvertently be converted into marital property and therefore become subject to division between the two parties.

All property acquired during the term of your marriage is marital property regardless of how it's titled or whose names it's in. For instance, a business you started during your marriage or a 401(k) in your name that you funded during your marriage will be considered marital property.

Many a woman business owner has been shocked to find she may be required to share ownership of her company with her ex-husband, or worse, sell her own business to comply with a divorce judge's order.

Even a gift from your mother when you were young may lose its separate property status if it was commingled with marital property.

When you consider the types of assets affluent couples often own, it gets much more complicated: stock options, restricted stock, real estate investments, intellectual property such as trademarks or patents stemming from a business owned by one or both of the spouses, and so on.

It's important, too, to realize that some assets are worth more than others, even if they're valued at exactly the same dollar amount. For instance, $500,000 in a bank account is usually worth more than $500,000 in a traditional 401(k) account, since taxes have already been paid on the money in the bank but have not yet been paid on the money in the 401(k).

For more on this topic, we recommend "Understanding How Assets Get Divided in Divorce", a Forbes.com article written by Bedrock Divorce Advisors founder Jeff Landers.

Q. Can I keep the house? (Should I keep the house?)

A. A residence is often one of the biggest assets a couple owns together, and more than that, it's home… full of memories. Keeping the house, though, may or may not be the right move for you.

Before you insist on keeping the home, consider how that will affect your budget. Remember, you'll be solely responsible for its expenses, and mortgage payments are only part of it: there are also real estate taxes, property insurance, utilities, maintenance of the structure and items like flooring, lawn care and other costs to consider, including unexpected repair costs that can be a shock to anyone's system.

And while a house may look nice on a net worth statement, it isn't very liquid; in this economy, it may take longer to sell than you expect, and may also not increase in value for some time. A $600,000 house on a net worth statement is quite different than $600,000 in your bank account—and don't forget possible capital gains taxes when you sell.

That said, for sentimental or other reasons such as keeping your children in the same school or close to their friends, keeping the house may be the right choice for you. Just make sure you carefully consider all the angles.

Q. Why do you mention divorce courts and judges so often? Aren't some divorces settled amicably and outside of court?

A. About 95% of divorce cases are settled without going to trial, and some of these are even amicable. However, a divorce judge has to approve any divorce settlement agreement and issue a final divorce decree before any divorce can be finalized, so no matter how amicable a divorce, a judge and the courts are involved to some degree.

It's our hope for you that your divorce will be settled amicably, too. Even in an amicable divorce, though, you'll need to know which settlement option will provide the best long-term financial security for you and your loved ones. And unfortunately, even though one hopes for a relatively trouble-free process, the truth is that you and your divorce team need to be prepared in case it is not. A stressful event like a divorce can prompt uncharacteristic behavior… and you don't know what your husband's divorce team may be urging him to do.

Q. How can I find an excellent divorce attorney?

A. Women entering divorce proceedings often retain us before they retain a divorce attorney, and in those cases we're happy to recommend several excellent divorce attorneys in their city for consideration. A highly qualified attorney is needed even in an amenable divorce.

For more on this topic, we recommend "The Secret to Surviving Divorce with Your Finances Intact", a Forbes.com article written by Bedrock Divorce Advisors founder Jeff Landers.

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How Bedrock Divorce Advisors helps women obtain better financial outcomes

Q. What does a Bedrock Divorce Financial Strategist™ do?

A. A Bedrock Divorce Financial Strategist™ serves as the financial expert on your divorce team, partnering with your divorce attorney to increase your chances of receiving the most financially favorable divorce settlement—one that will help secure your financial future. While your attorney handles the legal aspects of your divorce, we'll do our best to make sure you're financially covered before, during and after your divorce.

For instance, your marital lifestyle will be an important factor for the divorce judge when determining the amount of alimony to grant. We'll conduct a thorough Lifestyle Analysis with the goal of enabling your divorce attorney to justify an alimony amount (within the confines of your state's laws) that will allow you to maintain your current lifestyle or something reasonably close to it after the divorce.

We'll also show you and your divorce attorney the full financial and tax implications of each proposed divorce settlement offer: complex but crucial information likely to be missed by those without specific divorce-related financial education and experience. With these results in hand, your divorce attorney can back up your position with hard numbers at the negotiating table.

We also help women before a divorce is even in the picture. Our one-hour Just in Case™ session has been profiled by CBS TV News, and our Divorce Proofing service for Women Business Owners can be one of the most valuable investments a successful business owner makes. After a divorce, our sister firm, Bedrock Wealth Management, helps our clients and other divorced women make their divorce settlements last as long as possible.

Q. What is a Lifestyle Analysis?

A. A Lifestyle Analysis identifies the spending habits of a couple along with the day-to-day living expenses incurred during their marriage, with an emphasis on the last three to five years. It includes recurring and ordinary expenses as well as unusual and non-recurring expenses. It's often required by the judge and serves as a verification of the net worth and income and expense statements submitted by both spouses.

Locating and deciphering the financial records necessary to complete a Lifestyle Analysis can seem overwhelming at first, particularly if you haven't been responsible for household finances, but is extremely important since it can help a judge determine the amount of your divorce financial judgment and any child support ordered.

We'll make your Lifestyle Analysis as easy as possible for you by analyzing your personal and business income tax returns, bank and credit card statements, brokerage records and credit reports, along with those of your husband's, if available.

We'll also help you identify non-recurring or occasional expenses and look into spending about which you may have been unaware: though this isn't always the case, unfortunately, it's not unusual during this process to discover your spouse has been selling or concealing marital assets and income, collecting art, or even supporting an extramarital relationship unbeknownst to you.

Once your Lifestyle Analysis is completed, you'll have a more accurate picture of what it will take to maintain your current lifestyle... and so will your divorce attorney and judge.

Q. Why can't my divorce attorney, CPA, or financial advisor handle these things for me?

A. In some cases, a divorce attorney may offer to assist you with a Lifestyle Analysis or another financial aspect of your divorce, but he or she is unlikely to have the specialized training and expertise in divorce finances to do so as thoroughly, efficiently, or cost-effectively as our Divorce Financial Strategists™ will.

When it comes to Bedrock's other divorce financial services, divorce attorneys, CPAs and financial advisors are unlikely to realize even what analyses and projections they ought to conduct on your behalf. They're often very competent at what they do; divorce finance is simply not their specialty, so they haven't had the advanced training or hands-on experience needed. In fact, finance is rarely taught in law schools.

While CPAs can provide good historical and present-day snapshots, few carry out future projections… and yet it's these future projections that will show you whether your future is likely to be financially secure or not.

Similarly, financial advisors tend to have little knowledge of the financial and tax implications of divorce. Only 1% of financial advisors have earned the Certified Divorce Financial Analyst™ designation, and most of them have not completed additional training or education in the field of divorce finance and law. Many large financial services firms, too, including Merrill Lynch, Morgan Stanley, UBS, and Wells Fargo, don't permit their financial advisors to provide advice on real estate or closely held businesses, and yet for many affluent couples, these represent the vast majority of their net worth.

Consider, too: many divorce attorneys welcome our financial expertise and support when it comes to the daunting task of conducting a Lifestyle Analysis or providing complex financial projections that justify your position at the negotiating table.

Q. Can hiring a Bedrock Divorce Financial Strategist™ really make a difference?

A. Yes. For a woman with significant or complicated assets, working with one of our Divorce Financial Strategists™ can mean a life-changing financial difference.

As just one example, we've experienced many situations where a client's proposed divorce settlement seemed very fair and reasonable at first glance, but after preparing our analyses and projections, we found our then-affluent clients could expect to run out of money in less than two decades.

Why? Women who earn substantially less than their husbands or have been out of the work force for years will often have to start liquidating their assets soon after the divorce in order to maintain anything close to their pre-divorce lifestyle… while their husbands immediately start to rebuild their assets and retirement funds. After years of liquidating assets these women are in dire straits, while their former husbands are increasing their own earning power and enjoying a net worth in the millions.

The lesson? There's no way to know how a proposed divorce settlement will impact your financial future without the types of analyses and projections Bedrock provides. In the example above the lower-income wife was impacted, but women who earn the higher income in a marriage can unknowingly accept a seemingly fair settlement offer as well and suffer negative financial consequences.

Our expertise and attention to detail can provide an astonishing financial value proposition for our clients, but that isn't all of it: there's an emotional component, too. Our slogan, "Think Financially, Not Emotionally®", is more than a string of words to us. Supporting each of our clients emotionally while helping her think proactively during a time of great upheaval can make a huge difference not just in the financial outcome of her divorce, but in her peace of mind during the divorce process and thereafter.

In the end, our work on your behalf can be both helpful and valuable whether your divorce negotiations are friendly and amicable or an all-out court battle. In fact, when a divorce is amicable our services can be even more valuable, since many women hesitate to rock the boat by insisting on the amount needed to secure their long-term financial well-being. Coming to the negotiating table with black and white numbers can make this easier.

Q. I have a prenuptial (or postnuptial) agreement, so I won't need a Divorce Financial Strategist™, right?

A. It's wonderful that you have a prenuptial or postnuptial agreement! Depending on the circumstances, obtaining a prenuptial agreement might be one of the most important steps a woman can take to protect herself in the event of a future divorce. (Though not always! Because she had no prenuptial agreement, Kobe Bryant's wife, for example, will do much better after her divorce than she would have otherwise.)

However, we do want to caution you that some prenuptial or postnuptial agreements may not be worded properly or can have other defects allowing them to be invalidated by a judge. Keep in mind, too, that prenuptial agreements are typically more likely to be enforced by the courts than postnuptial agreements, and that several states still do not recognize postnuptial agreements.

We encourage you to contact us as soon as you begin thinking about the possibility of divorce. Depending on your situation you may still need the services of our Divorce Financial Strategists™. When it comes to divorce there are no do-overs, so it's better to be safe than sorry.

Q. Whom do you serve?

A. Our clients include all types of women: executives, celebrities, business owners, stay-at-home moms, and more. They all have significant or complicated assets in common, and they want to work with advisors who understand and respect their need for privacy and discretion.

Q. What if I'm not in New York?

A. Bedrock is headquartered in Manhattan, but we serve and advise affluent women throughout the United States... not just during a divorce but beforehand and afterwards as well.

Q. How does Bedrock's process work?

A. At Bedrock, our process is comprehensive. The details can be quite different for each client given the unique situations we encounter but generally, after conducting an initial financial assessment on your behalf, we'll provide a Lifestyle Analysis and other documents required by your divorce attorney and the court, including a financial affidavit and/or net worth and income and expense statements. As part of this process, we may uncover hidden assets or income that can significantly help your case.

Next, we'll prepare financial and tax projections of any proposed divorce settlements, providing your divorce attorney with hard numbers to back up your position at the negotiating table or in court if necessary.

Your attorney will handle all legal matters and the actual settlement negotiations: our services complement rather than compete with your divorce attorney.

Q. How do we get started?

A. We'd be delighted to hear from you! The first step is to contact us to tell us about your situation. We'll give you a free Divorce Financial Checklist that outlines the documents you'll need to start gathering.

The next step is to schedule a one-hour consultation with us. The fee for our initial consultation is $400, which needs to be paid prior to our meeting or call. Please email your payment via PayPal to landers@bedrockdivorce.com or contact us to arrange for an alternate payment method. Should you decide to retain us, this $400 would be applied to our initial retainer fee.

We always seek to provide an excellent value to our clients. Our fees are often a small fraction of the amount a woman gains by retaining our services.

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