Originally published in the January 2009 issue of the King County Bar Association
Bar Bulletin. Reprinted with permission of the King County Bar Association.
They started to fight when the money got tight and they just didn’t
count on the tears…
Remember that line from Billy Joel’s, “Scenes From an Italian
Because financial strain is often cited as the number one cause of divorce,
it is reasonable to assume the current economic downturn will likely have
a negative impact on some marriages and domestic partnerships. While finances
are a major factor in a divorce proceeding, economic uncertainty should
not be the deciding factor for a client to remain in an unhealthy relationship.
Although couples from all income levels can have difficulties during times
of financial stress, the decisions and complications that result from
ending a relationship often vary based on income demographics. Some opine
that the rich can more easily mask relationship problems with expensive
distractions, but when money gets tight the reality of the relationship
comes out of hiding - sometimes the couple does not like what they see.
For middle and lower-income couples, the strain of making ends meet can
cause irreversible damage to a relationship.
The more complicated the marital and separate estates, the more analysis,
planning, and multi-disciplinary coordination is required to ensure clients
are left well-positioned to embark on post-divorce life. For complex financial
divorce cases, pre- and post-petition planning might be extensive, including
obtaining valuations, changing wills and estate plans, financial analysis
and planning, career planning, etc.
Even amidst economic uncertainty, a divorce is a manageable process with
the help of a qualified, committed, and creative attorney.
Timing is Everything
A “market timing” approach might be in the best interests of
some clients. For example, during pre-petition planning in a recent case,
the wife obtained a valuation of the main community asset - a successful
business managed and controlled by the husband. The wife knew husband
would buy her out, but she was not happy with the valuation. The wife
also knew that a favorable event would occur over the course of the next
12-months and would likely increase the company’s value. Although
unhappy in her marriage, she made the cost/benefit decision to wait until
the company’s value was higher before initiating divorce proceedings.
If viewed from the husband’s perspective in this case, initiating
divorce proceedings now and delaying events that would increase value
might be in his best interest. Such timing decisions can significantly
impact the financial obligations and asset distributions in a case.
For couples with wealth tied to investment portfolios, timing may not be
the issue, but rather making sure that division and distribution of investment
assets are made not just based on present value, but also in consideration
of asset risk going forward. This analysis might require a unique expert
who can not only inform the parties and court about present value, but
also the value of risk balancing when distributing varying asset classes.
Support and Maintenance Obligations
During uncertain times when incomes might fluctuate considerably or are
lower than normal, child support and modifiable maintenance obligations
may become impossible to meet. One option is to provide an obligation
in support orders for parties to cooperate in periodic exchanges of income
information followed by appropriate adjustments to the support obligation.
Parties often agree to make spousal maintenance obligations non-modifiable,
but in adverse and uncertain economic times, agreeing to non-modifiable
maintenance provisions may be unfair and potentially devastating to both parties.
For those who have already been through a divorce and have support obligations,
child support obligations can be reviewed as a matter of right every two
years or when there is a substantial change of circumstances. An involuntary
significant and ongoing decrease in income may constitute a substantial
change of circumstances.
Creative Property Distribution Solutions
For couples whose wealth is tied up in the family home, the decision to
divorce may be difficult to make. In the current economy, it is likely
that either the family home value is less than what is owed, or the home
equity or other liquid assets are not enough to fund two separate households.
In this situation, the couple might continue to own the home as tenants
in common for a period of time until market conditions improve, with one
party continuing to reside in the home and the financial responsibilities
of maintaining the home equitably apportioned. When using this approach,
language in the settlement agreement or decree must be clear regarding
when the house will be marketed for sale, how net proceeds are defined
and distributed, and the enforcement options for a party who does not
ultimately cooperate in a sale.
As asset values decline and incomes contract, the need for attorney creativity
and client cooperation becomes more important to achieve reasonable results.