You can approach your divorce in many ways. On one end of the spectrum is aggressive litigation, which can be characterized by extreme tension and skyrocketing costs. On the other end is a completely amicable separation, where there’s no contention about assets and you both go your separate ways without any qualms.
The divorce process for most people falls somewhere in the middle of these two extremes. If you’re able to lean towards an amicable divorce, you can save time and money and reduce stress throughout the process.
That’s the general rule, but is that true even in the current economic climate?
A recent Wall Street Journal article questioned whether an amicable divorce is possible in an economy where inflation is high and interest rates are rising. The article asserts that assets are harder to value in a bear market, making it more difficult and financially intensive to divide them, and higher mortgage rates lead to tense arguments about who keeps the house.
While these are fair questions to raise, we believe that an amicable divorce is even more important in our current economic climate.
In this article, we’ll look at how to mitigate risks associated with an uncertain economy while going through your divorce, and how a fluctuating economy makes an amicable divorce even more appealing to most parties as they go through their divorce.
A Down Economy Can Lead to Reasonable Negotiation
It may seem that it is hard to negotiate fair value for alimony and assets during an uncertain economy. You may be assessing your income and assets on valuations that are not sustainable for the long term, or you may feel strain of job insecurity. However, during uncertain economic times it is even more important to think creatively to ensure a fair and amicable resolution is attained.
Negotiation for Assets
It’s difficult to negotiate a buyout for your home or business when the economy is soaring. One side may be hesitant to give up anything when profits are skyrocketing, while the other side can be hesitant to overpay when values are at an unsustainable high.
For many families, the two largest assets to divide are their home and their retirement account. Fortunately, there are reasonable ways to value and divide these assets, without resorting to costly litigation that would only serve to further cut into each parties’ share of the marital estate.
For example, most parties to a divorce divide their retirement or investment portfolio not based on a fixed dollar amount that may be artificially higher or lower due to the current economic environment, but as a percentage of the portfolio that was acquired during marriage. This ensures that market and investment risk is shared equally between both spouses.
Similarly, while many people have historically relied on online resources to value their homes, when the economy is uncertain you may be best served obtaining an appraisal to ensure the valuation is accurate. In relative terms, the cost of an appraisal is reasonable relative to the peace of mind of a fair valuation.
While the most common way to equalize the division of real estate is for the party retaining that property to refinance and “buy out” the other parties’ interest, there are also a number of other, more creative options to consider that may make it more reasonable for you or your spouse to keep the house. First, an unequal division of other assets is always a first option to consider. This would mean that if one spouse keeps the house, they would receive a correspondingly smaller share of investment or retirement assets. If this is not a possibility, it is worth considering more creative options such a deferred sale of the property, or a structured buyout over time. In most instances, these types of solutions require an agreement, and highlight the importance of working amicably with your spouse to ensure you both are satisfied with the outcome.
Sustainable Spousal Support
Unfortunately, economic booms are almost always followed by a correction. This can lead to a decline in profits for business owners or job instability for employees. If you’re negotiating alimony at the peak of an economy, you may fear making unsustainable payments when the economy corrects.
First, it is important to note that while spousal support (as alimony is referred to in California), is not always as simple as dollars and cents. The Court in most circumstances is required to take into account a holistic approach using a series of factors under Family Code section 4320. Taking these factors into account, there are a number of possible solutions that allow you to have certainty of outcome irrespective of how the economy may shift.
First, a “Richmond Order” allows for gradual step-down in spousal support over time, with an expectation that the supported party will make efforts to provide for their own financial support as time goes by. This can provide both parties with a measure of predictability and a foreseeable “light at the end of the tunnel” they can rely upon.
Second, in some circumstances it may make sense to negotiate a lump-sum buyout of spousal support. There are obvious risks with this approach, but for many people this is an appealing option.
Finally, if one person’s pay fluctuates due to bonuses, commissions, or stock grants, it is possible to base support on their base pay only, and then include a percentage of that additional unpredictable pay if and when it occurs. This is referred to as a “Smith-Ostler” order.
The above represent a few of the more common options that are possible when you negotiate and reach agreements with your spouse, and some of these options are not possible if you choose to litigate. By exploring creative options during negotiation, you’ll know you can make those payments even when things are at their worst and have more sustainable payments through financial ups and downs.
Is Amicable Divorce Possibly in this Economy?
As you can see, an amicable divorce is not only possible in this economy, but even more important to ensure you are not stuck with unsustainable and painful long-term outcomes.
There are a few steps you can take to ensure an amicable divorce for yourself and your partner – even in the current economic climate. Taking these steps will be advantageous for your mental health and your wallet.
Take Care of Yourself
Before you begin anything, make sure you’ve taken care of yourself first. If you’re not in the right state of mind as you head into divorce proceedings, it’s highly unlikely you’ll be able to act amicably when negotiating and figuring things out with your partner. Divorce is emotionally taxing, to say the least.
Take time to gather yourself and take action to help yourself heal. This may be finding the right therapist, talking with friends and family, or forming healthy habits to get you in the best state of mind.
Coming into the divorce process with a clear head will be an incredibly important part of pursuing an amicable divorce.
Focus On The Big Picture
Zoom out and keep the big picture in mind. If you have kids, focus on them throughout the process, and think how much better it will be for them if you and your partner separate on amicable terms.
Choose an Attorney Who Focuses on Resolution
Many attorneys will “over promise and under deliver” or focus on Courthouse victories rather than negotiating amicable settlements. While litigation is sometimes necessary, finding an attorney who is selective about when they advise to pursue litigation, rather than an attorney who is eager to litigate at any cost, will make it more likely you attain creative, sustainable solutions for the next chapter of your life.
Mediation Over Litigation
Choosing mediation over litigation is choosing to solve things amicably. It gives you the option to decide things without the court getting involved, to operate on your own time, and to decide support terms and asset division all with your partner.
Having a knowledgeable and professional mediator can make all the difference in solving things amicably. Any road bumps you have along the way, whether it’s confusion over paperwork or minor disagreements, a third-party mediator can offer both you and your partner guidance throughout the divorce process and ensure things are solved fairly based on what you and your partner want.
Staying patient with yourself and your partner throughout the process will go a long way in keeping things cordial. No one wants to be rushed through a divorce, and tempers can rise quickly if you try to speed up the process. Being patient and kind to yourself will also allow you to be more grounded throughout the process. It’s not easy, and it’s okay to give yourself time.
Finding a Mediator
A good mediator can go a long way in keeping the divorce process on track and amicable. Contact Alaimio Boyer today to be connected with a team that takes pride in finding resolutions that are fair and equitable for both parties.