A Financially Fair Divorce Requires Being on the Same Page
The most basic way to understand the financial part of divorce would be: whatever happened during the marriage is split equally upon a divorce. Seems easy enough, right? That might be the case if a couple was married for a short time, their only income was money made from their jobs, they didn’t buy anything significant, they didn’t accumulate any debt, and they didn’t do any investing. I’ve yet to see a divorce like this!
In reality, a separating couple has had a financially complicated life together, full of everything from retirement investments and property purchases to inheritances and credit card debt. It becomes a little like that big ball of charging cables we all seem to find in a drawer somewhere. With a little care, everything can be sorted out, but it won’t get there on its own.
Unfortunately, the number one factor in determining how well a divorce will go (financially speaking) is transparency, but many people have a preconceived notion that in order to “win” a divorce, you need to hide information or at least manipulate it. “Winning” a divorce, in my opinion, means that clients achieve fair resolution as peacefully as possible. To do this, everyone needs to have the same information, to be on the same page. Collaborative Divorce is a resolution-focused divorce process where each client has their own lawyer, but there can also be other professionals, like financial neutrals, included on the team as shared experts. Every person commits to staying out of court as well as transparency and the goal is peaceful resolution.
How divorce finances work in litigation
In litigation (court-based divorce), each client will often hire a financial expert to speak about how to divide assets and come to a fair agreement. While this financial expert is supposed to be unbiased, what usually happens is that each expert is given different information. Even unbiased experts can offer extremely (and unintentionally) biased recommendations if they don’t have the correct information. In these situations, it can become a battle of the experts where asset division comes down to proof and a judge will decide what is equal. Although there are many instances where proof is simple, there are many where it’s not. For example, maybe a financial gift was implied or verbally spoken but that person is no longer alive to confirm details.
That whole “being on the same page” thing comes back. Financial professionals need to see the entire picture. It’s the way that a divorce can be fair and it’s also the way that a divorce can be flexible (if you choose a legal method like Collaborative Divorce, but more on that later).
What kind of financial information is even considered during a divorce? This is a question I think that a lot of people have.
Quick Breakdown of Financial Considerations During a Divorce:
1. Assets & Asset Division – Items like owned land, household items and vehicles, bank accounts/securities/pensions, life and disability insurance, business interests/trusts/investments, money owed to you, airline or credit card points, and intellectual property/patents.
2. Debts & Liabilities – Simple debts like credit cards, but also things that are mid-process like maybe disputing a tax assessment.
3. Property & Debts on Date of Marriage – A complete picture of each spouse’s financial position when entering the marriage.
4. Excluded Items – Inheritances and gifts usually fall into this category.
Some of these items are straightforward, like the balance in a bank account on a specific date. Others are a lot more complicated and can involve disputed valuations, tax implications, or just plain old “I can’t remember” conversations among clients. One of the more unglamorous tasks of a financial professional is explaining which financial items are worth exploring and which ones will cost more to get to the bottom of than they are worth. There are times where I simply show multiple scenarios and the financial implications of both.
Collaborative Divorce and Finances
This kind of “how does this play out?” planning during a separation is where Collaborative Divorce shines. Instead of two opposing sides, everyone is working together towards a resolution. There is a commitment to be transparent, which I’ve already said is the most important part of fair property division.
If a financial neutral is equipped with all of the correct information, they can help to provide the separating couple with everything they need to move forward and feel in control of their financial future. Because, there is a financial future and the more that this future is a part of divorce negotiations, the better. Financial neutrals in a Collaborative Divorce are working for both clients and a part of their job is helping them to understand how the incomes that were supporting one household now need to support two.
Sometimes money isn’t about money
One of the interesting aspects of Collaborative Divorce is that lawyers typically try to understand their clients’ motivations and potential issues. Maybe someone is truly terrified that they won’t be able to afford their mortgage and is making financial discussions difficult as a result. Maybe someone else is emotionally attached to a particular piece of furniture and is digging their heels in. In Collaborative Divorce, all of the professionals work together towards a resolution instead of trying to get their client more than their fair share. Family or mental health professionals can help clarify these motivations or even lawyers themselves.
When everyone is committed to the same goal, it’s amazing how cooperative you can be.
Melanie Russell is the founder of Kalex Valuations Inc. and began professional practice in 1985. Throughout her professional career she has been involved in many assignments for a variety of public and private companies of various sizes and across many industries. She founded Kalex Valuations Inc. in 1996. Melanie has qualified as an expert in the areas of business/asset valuation, quantification of damages, income determination and forensic accounting. She has testified as an expert in business valuations in the Ontario Court of Justice and the Ontario Superior Court, and for the Investment Dealers’ Association and the Discipline Committee of the Institute of Chartered Professional Accountants of Ontario, as well as in alternative dispute forums.
