Filing and going through a divorce is a very stressful situation. Because of this, it’s natural that clients will allow emotions to control many critical decisions. Legal fees, therapist bills and single-handedly shouldering bills can often drain a client’s savings. When your client’s feelings begin to cloud their judgment; mistakes are more likely to be made. Counsel should advise clients up front and early in the process of the common missteps to avoid.
1. Not considering collaborative divorce or mediation early in the process.
The process of untangling years of marriage can be complex. Too often couples engage in a hostile divorce process, trying to outwit the other which ultimately ends in astronomically high attorney fees and further emotional stress. Collaborative divorce is instead focused on an open process of problem solving and the development of amicable solutions through the guidance of professionals which can include attorneys, accountants and divorce financial planners. While collaborative divorce or mediation may save time and money, it is not right for everyone. In particular, collaborative divorce may not be suitable if there is a power imbalance, lack of transparency in financial matters or if other forms of abuse exist. However, if both spouses want a fair resolution with the least amount of emotional stress, a consultation with individuals who specialize in collaborative divorce may help.
2. Failing to know assets and liabilities.
In many marriages, one partner has a better understanding of the couple’s finances than the other. As counsel, you need to advise your client that now is the time to start paying attention. The client should be immediately advised to take an inventory of all the assets from the marriage and also the assets that were brought into the marriage by each party. Make sure that your client understands that this is not as simple as knowing what’s in the bank accounts.
The client should be advised to begin gaining access to all of the necessary financial information, including but not limited to, complete bank records, tax returns, pay stubs, appraisals and bills of sale for real estate and large assets, copies of all utility bills, and expense statements, all credit card/debit card statements, and anything else that accounts for the money spent and acquired during the marriage. The client will also need to track retirement accounts and life insurance policies.
Clients should also be advised that because Nevada is a community property state, they will likely be held responsible for half of the spouse’s debt even if the debt is not in their name. Even in non-community property states, clients may be liable for jointly held credit cards or loans. Attorneys should obtain a full credit report for both parties, so there are no surprises about who owes what.
3. Underestimating expenses and having unrealistic lifestyle expectations.
Many divorcing couples underestimate just how significant the financial impacts of a divorce can be. It will likely be difficult to maintain two separate households with the same pool of income and assets that were previously sustaining one. Clients need to be advised early in the process that many changes to spending will be needed to afford daily and monthly expenses going forward. Many couples fail to take the pre and post-divorce budgeting process seriously. Clients should be asked to come up with a monthly budget that accounts for all ongoing expenses – utility bills, rent/mortgage, insurance payments, subscriptions, entertainment, food, clothing- everything. Many people underestimate their living expenses and later realize they are unable to cover all their expenses.
4. Ignoring tax consequences.
Just about every financial decision made during a divorce comes with a tax bill. Many attorneys push forward with property division without being aware of the tax consequences on their client. Attorneys need to be aware of the possibility of significant tax consequences to their clients and should negotiate accordingly. For example, the cost-basis of assets being split and the tax impacts of liquidating assets in the future must be considered in negotiating property division. There may also be considerations in alimony or support obligations and the manner in which those obligations are paid. Attorneys handling divorces should always, at a minimum, advise clients to consult with an accountant or financial advisor regarding the tax consequences of any proposed property, alimony or child support settlements prior to finalizing any agreement so that the tax impacts, if any, are fully understood.
In cases with significant assets, an accountant should be consulted with directly in structuring negotiations to ensure that tax consequences associated with the divorce are accounted for.
5. Properly handling retirement accounts and benefits.
If either party holds a retirement account, counsel needs to consider protecting the client’s share of the assets in any divorce settlement through a qualified domestic relations order (QDRO) which allow for a one-time withdrawal from the ex’s 401(k) or 403(b) account without paying the normal 10% tax, even if the client is under age 59.5. Additionally, for couples married for 10 years or longer, the lower earning or non-working spouse is entitled to receive social security benefits based upon the higher earning spouse’s record – without impacting the higher earning spouse’s benefit. This can be an important consideration if the client is close to reaching the 10-year threshold as it can make a substantial difference for the lower-earning spouse in the future.
6. Failing to insure the Divorce Settlement.
It is possible the client’s former spouse may die prematurely or sustain a disability, which could result in a loss of income and thus, a loss of alimony, child support, education tuition, or settlement payments if not properly insured. Attorneys should consider reciprocal insurance policies can guarantee that such payments will continue in the event of death or disability of the ex.
7. Talking trash about the other party.
It’s very important that clients are advised to avoid making disparaging remarks about the other party in front of any children or on social media. Doing so can significantly impact how the Court perceives your client. But more critically in divorces with young children, saying unkind things about the ex will most likely upset the children. Most children love both of their parents, regardless of the flaws and faults that those parents may have. Children are the product of both of their parents, so insulting one parent is the same thing as indirectly insulting the child.
8. Holding onto the house.
Clients should think long and hard about whether to keep the marital residence. Most people think of their home as their refuge. Because the divorce is already causing significant changes, clients may cling to the marital residence as a life raft or the one constant that they are not willing to let go of. With only one person paying for the upkeep, property taxes and emergency repairs after the divorce, keeping the home may be a significant detriment. Before deciding to stay, attorneys should ask clients to take a hard look at the likely post-divorce finances to determine whether the client can afford the mortgage, as well as the costs associated with maintaining the property. Clients should likewise be advised that property values fluctuate and resale can take significant time, so they should assume that a sale of the house for the amount needed is assured in the event that money becomes an issue in the future.
9. Forgetting to update estate planning or beneficiary on death accounts.
Too often, updating wills, powers of attorney, living wills, beneficiary designations and the like are forgotten after the divorce is complete. It is critical to remind a client to recalibrate any estate plan and any beneficiary designations. Referring your clients to a post-divorce estate planning and financial professional can help ensure that the proper documents are updated and assets are retitled accordingly.
10. Thinking divorce advisors are friends.
Because divorce is emotionally stressful, many clients forget boundaries that should remain in place with their attorneys. Depending on the client and the case, an attorney may be more sympathetically drawn into crossing that line. Clients and counsel need to remember that the lawyer is not a generous confidante whom the client can simply thank with a cup of coffee, but a paid professional who is likely billing the client by the hour. In many cases, and particularly those with young children, the relationship that will continue after the divorce process is the new one with the ex, and not the one with the lawyer. Clients and counsel need to remember the professional, and often temporary, nature of the attorney-client relationship.
It is critical that counsel in the divorce process explain that these common mistakes can have a detrimental impact on custody decisions, property division settlements, and child and spousal support matters, not to mention the long-term impact on the client’s relationships and finances going forward.
Nedda Ghandi, Esq., is the founding partner of Ghandi Deeter Blackham Law Offices. A Nevada native, Ghandi is a graduate of the University of Nevada, Las Vegas William S. Boyd School of Law and has practiced law in Las Vegas for 9 years. Ghandi has written numerous articles for publications concerning interesting developments in the law, and has been selected as a member of Nevada’s Legal Elite and as a Super Lawyer every year since 2013. Ghandi Deeter Blackham specializes in family law, bankruptcy, guardianship, and probate. Consultations may be scheduled by calling 702.878.1115 or visiting www.ghandilaw.com Nedda Ghandi, Esq., is the founding partner of Ghandi Deeter Blackham Law Offices. A Nevada native, Ghandi is a graduate of the University of Nevada, Las Vegas William S. Boyd School of Law and has practiced law in Las Vegas for 9 years. Ghandi has written numerous articles for publications concerning interesting developments in the law, and has been selected as a member of Nevada’s Legal Elite and as a Super Lawyer every year since 2013. Ghandi Deeter Blackham specializes in family law, bankruptcy, guardianship, and probate. Consultations may be scheduled by calling 702.878.1115 or visiting www.ghandilaw.com