That’s spawned a new profession, as the money crowd moves in to advise severing couples about the financial implications. Debra Neiman, a Wakefield, Mass., financial planner, tells clients to take steps as soon as they see the writing on the wall. Get separate checking accounts and credit cards, she says. Make sure you both maintain health, life and property insurance during the separation period. Then find a qualified therapist to take over anger management so Neiman can focus on the finances. Couples who put emotions in control will pay a price; average legal fees top $20,000 and move quickly into the $50,000-and-above range when disputes heat up.
Pension parity: Divorces have come a long way since 1997, when Lorna Wendt became the patron saint of divorcing women everywhere by trying to get half of her executive husband Gary’s General Electric Co. pensions, deferred compensation and stock options. (She’s still trying; the case is on appeal in Connecticut.) Now many spouses know they’re entitled to a piece of their partner’s retirement plan, but they may not know how to get it.
How, for example, do you evaluate a pension for divorce purposes, asks Tim Voit, whose Milwaukee firm Voit Econometrics Group focuses exclusively on this problem. “It’s the largest marital asset, the one that is often misinterpreted or overlooked, and any slight variation in the assumptions used can result in an understatement or overstatement of thousands or tens of thousands of dollars,” he says. The 401(k) plans are easiest to split: two working partners can decide they will each keep their own plans. When only one has an account, they can transfer half from the account holder (usually him) to a rollover account for the other spouse (usually her). That takes a document called a qualified domestic-relations order (QDRO), but that’s well worth the $150 to $500 or more that attorneys will charge to file it. Workers who just withdraw money from their accounts and hand it over to their spouses, like Californian Bill Kirsch, will be liable for tax on the withdrawal. “She got the cash; I got the tax,” he remembers. Had they done the QDRO, they would have saved close to 40 percent of the 401(k).
Options on the table: The dot-com phenom has made stock options a part of more divorces than ever before. Couples who are holding options (the right to buy company shares down the road at an agreed-upon price) may not know what they are worth, says Manhattan CPA Henry Guberman. He suggests that couples split the options in the same percentages as they are splitting the rest of their property. The deal can be structured so the other spouse can exercise the options separately, though in most cases both partners wait for the employed spouse to exercise and then turn over the correct percentage of after-tax value to his ex. Options that haven’t yet vested have value, too.
Taxing questions: When couples try to pay each other in cash for the value of complicated assets, confusion sets in. Every asset has its own tax consequences. If a wife holds onto the house, she’ll lose the $250,000 capital-gains exemption her husband could have used at its eventual sale. She might not qualify for a mortgage. If a husband gets a larger share of a couple’s stock portfolio instead of a piece of his wife’s retirement account, he’ll be getting the tax burden, too. “You can’t say that because an IRA is worth $80,000 and a home is worth $80,000 and the bank account is worth $80,000 and the brokerage account is worth $80,000, they all have the same value,” says Guberman.
A cheaper process: Couples already shelling out money to financial pros are trying to hold the line on lawyers. They are heading to divorce mediators (one legal bill, not two), and snapping up do-it-yourself divorce kits which provide state-appropriate fill-in-the-blank forms.
David and Marlene Lynch of Hayward, Calif., had accumulated a house, two cars, a 401(k) plan and a couple of time-shared vacation retreats during a 10-year marriage. They also had two children. Lawyers told him it would probably cost each of them $12,000 in legal fees. They decided to bury the hatchet long enough to settle their own terms, and then surfed to DivorceMart (at divorcewizards.com). They downloaded the paperwork, made a couple of calls to Lynne Diamond, the mediator who runs the site, and wrapped the whole thing up for $500.
Sites like Diamond’s, or split-up.com, which features several alimony and property-division calculators, are making breaking up easier to do for couples who can work out their own deal. Someday, maybe they’ll have help with the bills. The National Underwriter, an insurance magazine, recently floated the concept of “divorce insurance” to help make legal and support payments. Couples could still get married for love, but they’d have a backup if it ended up being all about money after all.
