Relationships, Women’s Issues

Expert Advice on Divorce

The advice you need when divorcing in these troubled financial times
BY ODETTE M. BENDECK

DEPENDING ON YOUR PERSPECTIVE, now is either the best time to divorce or the absolute worst. In complex cases—it could be both. Understanding your finances and evaluating those options carefully with ounsel can make the difference between a good decision and a devastating one.

Understandably, even in good economic times, contemplating divorce is one of life’s biggest decisions fraught with emotional and financial pitfalls. By the time a party seeks legal counsel, the matter tends to fall into one of two categories: when to divorce, or whether to divorce at all.

Spouses that fall into the “when to divorce” category have already concluded that a divorce is inevitable—it is only a question of when they will proceed. In those situations, often the timing is driven by life events associated with children or financial events. Those that find themselves in the “whether to divorce” category, may have hope that the marriage can be saved, but still need to understand the process and realities of divorce should it happen.

In a severe economic climate such as we are now experiencing, it is more important than ever to understand how the financial issues of a divorce may play out. Whether you can use the economic times to your advantage depends on which end of the spectrum you find yourself in. Will you be the “paying spouse” or the “receiving spouse”?

The Paying Spouse
For this analysis, the paying spouse is the party in control of the assets and the party at risk of paying alimony to the other. Assuming, as is true in most cases, that the family net worth is going to be divided in half, there is no better time for the paying spouse to divorce than at the bottom of an economic downturn. After all, sharing half of a $10 million estate is less painful than sharing half of a $20 million estate.

A divorce is essentially “on sale” for the paying spouse when the assets are valued at their lowest. A divorce might even be a clearance sale when the assets include a business to be retained by the paying spouse. For purposes of the divorce, that business will be divided based on its current depressed value. If the paying spouse is convinced that over time he or she will be able to bring that business back to previously high values, that increase will not be shared with the receiving spouse who was “cashed out” when the value was low.

Another advantage for the paying spouse in a depressed economic environment is that support obligations are based on current income levels. The paying spouse may for the first time in many years be earning a fraction of the income enjoyed during the good times. Accordingly, when that lower income is the only source from which to pay support, it stands to reason that the support obligation will be considerably lower than it would have been had it been set at higher earning levels. While support obligations are typically modifiable, meaning that they could be increased in the future when economic times improve, generally speaking, it is beneficial for the paying spouse to have support initially set at a legitimately established lower level.

Of course there is another side to this coin even for the paying spouse. Depending on debt obligations to lending institutions and other fixed obligations, cutting up a drastically reduced income among the creditors can be extraordinarily painful in an intact marriage much less in a divorce. Given that the ability to sell real property in order to generate capital or reduce debt is greatly diminished at present, the domino effect of being unable to keep everyone paid can lead to dire financial consequences. As a result, even a paying spouse who has long waited for the perfect moment to divorce may find that there is a lack of liquidity or cash flow to make it work.

The receiving spouse Is there any upside to divorcing for a receiving spouse in this climate? Oddly enough, there can be. In a divorce, not only do the assets get divided, but so do the debts. It is not uncommon now for even the most well-intentioned spouse in control of the finances to be increasing the debt load in an effort to keep things afloat. If that continues, and if the house of cards falls, it may be that all there is left to divide is debt. Sadly, divorce litigation is now more often leading to foreclosure and bankruptcy litigation as well. So, just as it is preferable for the paying spouse to divide $20 million than $10 million, it is also better for the receiving spouse to receive $5 million in debt rather than $10 million. Another silver lining for a receiving spouse divorcing in this market is the availability of housing bargains. Even couples with a high net worth often have a large percentage of their net worth tied up in their primary home. In better economic times, finding alternative housing for the receiving spouse can be costly, resulting in a drastic reduction in the size or quality of the replacement home. Presently, there are more homes either on the market or quietly for sale under distressed circumstances than we have seen in decades. This presents options for a receiving spouse that do not exist in better housing markets. The Bottom Line While it is not polite to acknowledge that spouses may need to re-evaluate dissatisfaction with a marriage given economic times, it is a reality that sensible couples must face. Although this article explores the issues on a big picture basis, the factors to consider and the other factors involved are far more complex. Under any circumstances, divorce should not be taken lightly. In today’s uncertain financial times, it should not even be contemplated without the advice of competent legal counsel.

The Receiving Spouse
Is there any upside to divorcing for a receiving spouse in this climate? Oddly enough, there can be. In a divorce, not only do the assets get divided, but so do the debts. It is not uncommon now for even the most well-intentioned spouse in control of the finances to be increasing the debt load in an effort to keep things afloat. If that continues, and if the house of cards falls, it may be that all there is left to divide is debt. Sadly, divorce litigation is now more often leading to foreclosure and bankruptcy litigation as well. So, just as it is preferable for the paying spouse to divide $20 million than $10 million, it is also better for the receiving spouse to receive $5 million in debt rather than $10 million.

Another silver lining for a receiving spouse divorcing in this market is the availability of housing bargains. Even couples with a high net worth often have a large percentage of their net worth tied up in their primary home. In better economic times, finding alternative housing for the receiving spouse can be costly, resulting in a drastic reduction in the size or quality of the replacement home. Presently, there are more homes either on the market or quietly for sale under distressed circumstances than we have seen in decades. This presents options for a receiving spouse that do not exist in better housing markets.

The Bottom Line
While it is not polite to acknowledge that spouses may need to re-evaluate dissatisfaction with a marriage given economic times, it is a reality that sensible couples must face. Although this article explores the issues on a big picture basis, the factors to consider and the other factors involved are far more complex. Under any circumstances, divorce should not be taken lightly. In today’s uncertain financial times, it should not even be contemplated without the advice of competent legal counsel.

Odette M. Bendeck is a managing partner of Fisher & Bendeck, P.A. Both Odette M. Bendeck and Jeffrey D. Fisher are Florida Bar Board Certified Marital and Family Law Attorneys. Fisher & Bendeck, P.A. is located in West Palm Beach.