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Containing Costs & Financing Your Divorce

September 12, 2019
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"Why is divorce expensive?"

"Because it's worth it."

So goes the old joke. If you are considering divorce and you've done your homework, you may already be adding up the potential cost of your case in your head. Before you allow yourself to worry too much, know that there are things within your control that can keep your costs contained.

Like most things in life, some planning on the front end can save a good deal of money. But even if you are diligent, the cost can still outstrip your resources, so I will also address the use of credit.

Consider a Collaborative-Style Divorce

This isn't to be confused with Collaborative Divorce, which is a very specific process that can be costly (though it can deliver good outcomes). What I'm advocating is that you and your soon-to-be-ex-spouse work together to settle your case with minimal professional assistance. This is sometimes called an uncontested divorce. One of you[1] would hire an attorney to file the petition and other official documents as well as guide you through the process.

You and your soon-to-be-ex-spouse would then be responsible for figuring out who gets what in terms of assets, as well as the type of custody arrangement you want if children are involved. The attorney would be present to consult with you, but most of the back and forth is handled by you as a team. Once you've agreed, the attorney would then draft a decree for you both to sign and file with the court. It is a best practice to have the party not represented by this attorney hire their own legal counsel for the sole purpose of reviewing the decree before it is signed. If your estate is complex, you may wish to consult with a Certified Divorce Financial Analyst™ (CDFA®) on the financial aspects of your case in addition to your respective attorneys.[2]

While this is one of the least expensive ways to settle a case, it isn't for everyone. In order to work, both parties need to be willing and able to cooperate. So what if you and your soon-to-be-ex-spouse are not good candidates for an uncontested divorce? Don't despair; you still have options to contain costs.

Realize That Expensive Does Not Mean Better

Some clients make the mistake of thinking that an attorney who charges a higher hourly fee must be better than an attorney who charges a lower hourly fee. This is simply not true. That isn't to say you should hire the least expensive attorney you can find. Your selection criteria should include not just hourly fee, but other fit factors like areas of specialization, personality, and work style. If you select an attorney who is highly compatible with you, it's likely that you'll be more efficient in your work together and less likely to waste precious billable hours going back and forth. In addition, don't hire more attorney than you need. If your case is relatively simple, you don't need an attorney who handles highly complex cases (and bills accordingly). Don't bring a bazooka to a knife fight.

If you select an attorney who is highly compatible with you, it's likely that you'll be more efficient in your work together and less likely to waste precious billable hours going back and forth.

Some attorneys specialize in uncontested cases or focus on moving through contested cases with as little conflict as possible. An attorney with this practice philosophy can help you save money as well as sanity. Plan to interview at least two candidates before making a choice. Many attorneys offer a free or low-cost initial consultation. Take your time with this decision; it is one of the most consequential ones you'll make and will set the tone for your case.

Be Organized, Be Prompt, Be Patient

If you've worked with a CPA, Financial Planner, or other professional who bills hourly, you already know that the more organized you are, the less their services will cost. If you force your attorney (or their staff) to wade through piles of disorganized documents or put together information you can easily come up with yourself, you are wasting their time and your money. Yes, gathering and organizing all the documentation needed in a divorce case is a pain - but it's likely less painful than blowing through your retainer before you've even scheduled mediation.

When your attorney asks you to complete a task such as answering interrogatories[3] or submitting documents as part of discovery[4], do so promptly so they don't need to follow up with you. Along these same lines, if you are waiting on the other party of the case to provide some information or take action, resist the urge to constantly call or email your attorney asking for updates. Ask when to expect a result, and then wait until that deadline arrives before inquiring.

Know When to Fight

If your case is contentious or you are divorcing from someone with a high-conflict personality, it can be sorely tempting to fight over every little thing. Resist the urge. Every fight you start or engage in means more billable hours on both sides of the case. This isn't to say you should roll over every time your soon-to-be-ex-spouse makes a demand. But pick your battles wisely and try to keep in mind what really matters (though this is sometimes easier said than done).

If you are having difficulty determining which financial battles to fight, the services of a Certified Divorce Financial Analyst™ (CDFA®) can be invaluable.

The services of a good therapist can help you keep a clear head when things get heated. Regular therapy is often less expensive than crying on your attorney's shoulder or having them ride into battle at every provocation. If you are having difficulty determining which financial battles to fight, the services of a Certified Divorce Financial Analyst™ (CDFA®) can be invaluable. You may be thinking to yourself that adding more people to the team means more expense, and that is true. But paying the best-suited professional to do what they are good at instead of making your attorney a jack of all trades is often cheaper and more effective in the end.

Using Credit

Even if you've done everything right and been judicious in your choices, you may still end up with a case that is more costly than you can afford with the resources you have on hand. Let's assume you are also unable to rely on alternative resources like friends or family. When you hire your attorney, ask them if they are able to offer payment plans. Are they willing to accept a minimum monthly payment while the case is active, and then structure a payment plan for the balance of your legal fees after the case is settled? They may charge a rate of interest for this privilege, but it is likely to be lower than other options.

If your attorney is unable to offer a payment plan, that may mean turning to other forms of credit. Many clients fall into the trap of using credit cards to finance their cases, which becomes very costly very quickly. Annual percentage rates on credit cards average 20% - which turns your $5,000 retainer into a $6,000 retainer. You may also find yourself emerging from your case with a pile of high-interest debt, which can seriously hamper your ability to maintain your financial health.

If using a credit card is your only option, a zero interest balance transfer may be the best way to cope with a large balance. Credit card issuers sometimes offer zero interest for a period of time (typically 12 to 18 months) for balances that you transfer from another credit card. This is a way to get you to open a new credit card account with them. There is often a balance transfer fee of 3% to 5% but that's still less costly than the up to 20% in annual finance charges you might pay otherwise. If you choose to pursue a balance transfer, read the offer carefully, ask lots of questions to make sure you understand the terms of the offer and make a plan for how you will pay off the balance during the zero interest period.

Divorce Loans are an emerging trend. This is nothing more than a personal loan taken out in order to finance your divorce. In some cases, a personal loan may carry a lower interest rate than a credit card and could be a viable option. But before you jump headfirst into getting a Divorce Loan, do your homework. Interest rates on personal loans vary from as low as 5% to beyond 30% on an annual basis, so ensure you know the cost before you proceed.

Consider these tips as you decide how to proceed:

  • Borrow only from a reputable lender that provides you with ample information about how the loan works, what it will cost, and your options for paying it off.
  • Don't sign anything that you don't fully understand.
  • Consider borrowing from an institution that you already do business with. For example, if you bank at First Bank of My Home Town, approach them first to see what options they have for such loans.
  • Borrow only what you think you reasonably need. If you'll only need to cover a retainer and maybe a one-time replenishment (about $7,500 total), don't take out a $40,000 loan. Cash sitting in the bank has a way of getting spent.

If you must turn to credit to finance your divorce, do so with a plan for how you will pay off the balances you accrue. You must find a happy medium between knowing that you've got enough resources to take care of yourself in divorce, and accruing debt that you'll have difficulty paying off when you've finally settled.

Yes, divorce is expensive, and it brings with it a whole host of unpleasant feelings and situations. As much as possible, focus on what you can control so you can emerge on the other side as fit as possible emotionally, spiritually, and financially.

Still have questions? I'd love to help answer them.

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[1] Ethically, an attorney can only represent one party in a divorce case.
[2] A CDFA® is specifically trained in the financial aspects of divorce and can assist you and your soon-to-be-ex-spouse in formulating a settlement that serves the financial needs of both parties.
[3] Written questions which are formally put to one party in a case by another party and which must be answered
[4] A pre-trial procedure in a divorce case in which each party can obtain evidence from the other party by requesting documents or by submitting interrogatories