Archives: finances

In the past decade, Americans have racked up a prodigious amount of debt and it is fairly common for clients in divorce to not really understand how their debt is structured.  Was the U.S. Airways VISA joint or husbands with wife designated as an authorized user?  When trying to disentangle a couple’s financial relationship it is important for lawyers to know these things. Credit cards are also a fertile ground for fraud.  We have seen several instances where a spouse without access to his/her own credit, applied for a card or credit line on behalf of their mate without the inconvenience of telling him/her.  Of course, chances are excellent that you won’t have to pay for a credit fraudulently obtained on your behalf but that is often a laborious and complicated process.

Mortgages are complicated as well.  What laypersons call a “mortgage” is actually two legal documents.  When you borrow the money you sign a promissory note to repay it.  Then the lender asks you to sign a mortgage.  The mortgage is a pledge that the lender has dibs on your house if you default in paying the note.  What sometimes occurs is that one spouse has bad credit.  The lender will lend but only to the spouse with good credit.  Meanwhile, if the house is to be jointly titled, the lender wants both owners to promise that the lender has a secured interest in the house.  The “mortgage” is the instrument that provides that security.  So, if Wife has good credit and Husband has no credit or bad credit, the lender will have Wife only sign the note but both spouses sign the mortgage.  This means that Husband has no obligation to pay the note but if Wife fails to pay, the lender can foreclose on the house and Husband has no right to object.

If you are going through a divorce, order a credit report from Equifax, TransUnion or Experian. Federal law requires credit agencies to give you a free report once per year. It won’t reveal your credit score (that you will pay for) but it does show you what the credit information compilers think you have out there in the world of debt.  Study what you get and if things look wrong, it may be time to call the lawyer.  Note there are many subscription services that will monitor you for a fee.  That is a different animal than the report itself.

The stereotype of a family law attorney is that they deal in divorces or are limited to issues between spouses. The reality is that the practice can be far reaching in scope and encompass estate planning issues, business interests, and matters that extend beyond ex-spouses, but that deal with many aspects of a client’s life.  A recent example of how the term “family law” can truly encompass the entire family made news recently in the form of the legal action NFL rookie offensive lineman Tyron Smith had to take against members of his family. Mr. Smith found himself at odds with family members who allegedly had become so aggressive in their demands for money that he had to call the police to intervene. Mr. Smith’s representatives report that about $1 million is missing from him.

Mr. Smith plays tackle for the Dallas Cowboys. While in southeastern Pennsylvania that job description may not get him much sympathy, I think everyone can at least understand and appreciate why a young man who is (allegedly) missing $1,000,000.00 would need to establish some secure boundaries between his family and his money. An NFL player’s career is short; don’t confuse the small number of higher profile long-term players for the general rank-and-file of the NFL. The fortunate ones may play an average of three years; some never make it past their rookie contract or, for that matter, rookie training camp. Mr. Smith, under the NFL’s new collective bargaining agreement, is extremely well-paid, albeit not as well-compensated as his predecessors, many of whom has gone on to financial ruin due to family situations not unlike his.

 

As reported by Kareem Copeland of www.NFL.com, subsequent reports have come out about the facts behind Mr. Smith’s call to the police and his family disputes there was a disagreement about money (while acknowledging that he has given them a sizable portion of his four-year, $12.5 million contract). Nevertheless, Mr. Smith clearly reached a point where he could not trust those closest to him and had to act out of self-interest to protect himself and his financial stability.

 

Andrew Brandt, who has the distinction of having served on both sides of the NFL bargaining table as an agent and executive with the Green Bay Packers, wrote an interesting account of his experience with young players in similar situations as Mr. Smith. He has experienced the difficulty of counseling a client to act in a way that may hurt – emotionally or financially – someone they love, but sometimes that is a consequence of protecting the client.

 

Tyron Smith’s experience is not exclusive to wealthy athletes; many people find themselves in situations of having to seek judicial intervention in the form of Protection from Abuse Petitions, evictions, or needing counsel to resolve a financial issue in Orphan’s Court. Mr. Smith clearly found himself in a situation in which he had to consider what legal protections were available to him in order to secure his future. While Tyron Smith’s athletic career may be long, his post-NFL life will be much longer and – whether his actions prove to have been justified or a misunderstanding – he should commended for not waiting until his playing days and money ran out before doing something to protect both.

 The Wall Street Journal’s Smart Money on line edition featured an article about how to manage the divorce process.  It is both short and well written as it captures many of the issues that concern both lawyers and clients but often seem overlooked in terms of actual discussion.

1.             It’s costs more than you think.

 

This discussion addresses the part of the legal profession that offers fixed fee representation.  If you have been married just a couple years, have no money and no kids, these quickie services may produce a satisfactory result.  But if you have assets of any kind or any kind of dispute about your kids, go meet with someone who claims to specialize in divorce work just to make certain that nothing is left on the table.  For example, clients typically assume that they have no right to their spouse’s retirement. That’s not the case.

 

2.             Lots of divorce lawyers get sued.

 

Perhaps true.  There are bad apples in the bunch; both corrupt and merely negligent.  But if you sense that you are not getting the representation you deserve, go get a second opinion. There is a high dissatisfaction rate in this business but a lot of that has to do with unrealistic expectations on the part of the client.  Today we had a client tell us he would rather give all his money to us than any to his spouse.  That client is a ticket to a big fee and equally grand unhappiness when he finds out the system does not work that way.

 

3.             The less you know about your own finances, the more the divorce will cost.

 

Amen.  It is not uncommon to have clients who cannot explain their paystub let alone their 401(k) loan.  The level of financial knowledge that exists even among well educated people is pretty frightening.  You are paying lawyers to educate themselves about your finances. How does that make sense?  Clients also seem to love the idea of hiring “forensic accountants” to ferret out “hidden assets”.  This can be a useful enterprise but unless the client knows where to point the accountant, you are telling the dog to hunt without any scent of where to go.  That’s an expensive way to look for something.

 

4.             Promises, promises.

 

The article discuss lawyers who promise more than they can deliver.  Our view is even stronger.  Anyone who promises you anything in the world of litigation is probably leading you on.  Lawyers, at their best provide judgment and experience.  Life has no guarantees. The article references someone who paid their lawyer $70,000 and “got nothing to show for it.” That’s a loaded comment. Beauty is in the eye of the beholder. A certain prominent South Carolina trial attorney and former vice-presidential candidate just completed a trial where he probably spent $500,000 to $1,000,000 on his defense. He could say that he got nothing for his money because he was innocent anyway. Well, my friends, he could always have kept his budget thin and defended himself.

 

5.             Get someone with experience.

 

This is just No. 1 repeated. Buy as much lawyer as you need. If you have a house and a pension you don’t need Clarence Darrow.  But if you manage a hedge fund or your home is located over top of a natural gas deposit, don’t believe that any lawyer will do. Ask questions about how these assets get valued and divided in divorce.  If you get an unclear answer, it’s time to move on to a better lawyer.

 

6.             Prepare for plummeting income.

 

In our spend now, save later society, we have seen a sea change in the past five years. Professionals and other well educated folks are finding themselves without work for months or years at a time.  Others are taking jobs that pay 30-40% less than before.  This is sad but this is also capitalism.  You can no longer assume you can make it up later. We were all raised in a world where cost of living and a raise came to be the expected minimum.  This is a Brave, New World. Be prepared.

 

7.             Cry elsewhere.

 

                This is sage advice to a point.  Lawyers have no psychological training and charge 2-3x what a mental health professional does. But, lawyers also deal with folks going through this process every day and typically will have a feel for where you are in that process emotionally.  Psychologists often permit themselves to become pseudo-friends for their patients, a state that is unhealthy at best and destructive at worst.  At their low point, they will tell a patient to call their lawyer and tell the lawyer the patient needs more alimony or some other benefit.  That’s when the lawyer wants to call the shrink and tell them; look I need a new car and a date with Bridget Bardot.  Can you help me?  Be wary of lawyers who want to be your psychologist and just as wary of psychologists who think they can give legal advice.

 

8.             Lawyers may be unnecessary.

 

                True.  So are car mechanics, accountants and window washers.  In the end, we can do almost anything by ourselves.  The question is: is that smart? Divorce is a transaction that has deep and permanent effects on your family and your money.  If family and money don’t matter to you, perhaps you should save money and do it yourself.  But we met with a prospective client this week who put it best: “I’m here because I watched my business partner lowball her legal expenses in her own divorce. We’re breaking up our business but she will continue to pay her ex for years because never got any representation.” Too much lawyer may be a waste.  Too little lawyer is a disaster.

 

9.             The inattentive lawyer.

 

                There is one lawyer for every 265 Americans, the highest lawyer to population ratio in the world.  If your lawyer has no time for you go meet with that person; express your unhappiness and, if it happens a second time, move on.  Just be aware of a couple things when you do.  The transition is going to cost you a fair amount of money while the next lawyer learns what the first lawyer was busy forgetting.  Second, don’t expect instant lawyer. Any lawyer with a busy practice is fielding 100 or more emails a day in addition to court time, prep time, phone time and, yes, actual meeting with the client time.  An unreturned email or call is an oversight, not an insult.  But when a pattern emerges or your lawyer starts bullying you, get that second opinion.  Don’t ever fire a lawyer until you have a substitute lined up.

 

10.          Foot dragging.

 

                The Smart Money article focuses on lawyers dragging out litigation to earn more fees.  It does happen and that’s wrong.  But just as common, if not more so, is the new phenomenon we shall call client dragging.  We have divorces going on for years in situations where the clients are telling us there is no hurry.  We have other clients who come into meeting professing to want things resolved but then devoting no energy to collection and exchanging the data required to make the process work.  We will see folks who came into investigate their rights when their kids are in elementary school only to return with the kids now in high school.  The reasons are as varied as the client.  But a common theme is that people own and owe to lots of different things.  When they are asked to compile and digest all of that data, they can become depressed and weary of doing anything.  Realize that old data is typically useless data and the longer the case languishes the more expensive it becomes.

The practice of family law is where practicality meets emotion with diverse consequences.  For some, divorce comes upon them like a changing tide; for others, it is an emotional tsunami.  People fall apart for various reasons, but the two most common are: “I like someone better,” and “I can’t live like that.” The former has to do with love; the latter with money.

Bala Cynwyd psychologist Maggie Baker’s new book, Crazy About Money: How Emotions Confuse Our Money Choices And What To Do About It (2010: HW Press), dissects the caverns of emotion that money has carved in the American psyche.  As a student of history, what amuses me about the topic is how new and pervasive money management has become in America.  Until 60 years ago how money was managed wasn’t much discussed.  Nobody really had any worth talking about. 

But today lots of people have money.  And they fret over it.  People who don’t have money also fret over it.  Baker’s book isn’t about the money.  It’s about the fretting.  And in paging through it, one comes to recognize how emotional a subject money has become.  Often it is the catalyst for divorce when couples realize that their approach to asset accumulation is completely divergent.  Typically, for men, money is a source of power.  Some like it parked in their garage; some drive 15 year old cars because power is better displayed in the pages of their monthly brokerage statement. Women tend to see money as a source of security, although for some a pair of pumps can be as exhilarating as a Porsche 911 and we see a fair amount of unbridled spending for anything related to “the children.”

 Baker’s book reminds us that these habits come from our emotional framework and our financial history.  They are very deeply rooted but they can be changed if we are willing to invest time trying to understand our history and open our eyes to how we perceive our financial world.  I daresay that couples who feel powerless because of irreconcilable financial differences actually can save a marriage if they jointly explore what those differences are and where they come from.  It might save your marriage and deprive the voracious lawyers of a fee.  Oops, did I say that?

A recent article by Laura Petrecca in USToday highlights a fact which many people forget when considering prenuptial agreements – they are as different as the individuals seeking them.

As we have previously discussed on this blog, the law behind prenuptial agreements makes nullifying a prenup a difficult proposition, but it is also worth mentioning that in the creation of a prenuptial agreement, people have the opportunity to truly define how to deal with existing or future assets, conditions for distribution of assets, and any sort of “behavior insurance” they wish to create. Ms. Petrecca cites examples of limitations on weight gain and cocaine use as illustrative of the range of subject matter people can include in their agreements.

Prenuptial agreements force couples to discuss some uncomfortable truths about their finances and their view of the how money or assets should be treated in the marriage. Ultimately, people can essentially agree to any arrangement they want, provided they are being fully open with each other and making all the appropriate disclosures.

 

If you are considering a prenuptial agreement, take some time to think beyond just the few items you are seeking to protect and don’t be afraid to discuss with your attorney creative ways to structure the agreement so that you and your soon-to-be spouse each feel confident with the level of protection your receiving and secure in your understanding as to how you each are approaching your marriage.

My fellow blogger, Al Nye, the author of Maine Divorce Law Blog, recently sent me the following article.  Its a nice primer relating to things to think about as a client in making the decision whether or not to separate and divorce. 

Al writes the following:

You know the numbers.  It’s projected right now that about half of all new marriages end up in divorce.  It’s a horrible statistic that doesn’t begin to suggest the emotional and financial strain that it puts on families.  Other than the death of your spouse, divorce is probably the most stressful event you’ll ever face.  I’ve had women discussing their divorce in my office become violently ill.  I’ve seen hardened fishermen cry in open court during their divorce hearing.  Make no mistake – divorce is hell.

 

So what have I learned after being a lawyer for nearly 30 years and helping many folks go through this difficult process?  If you believe that a divorce is in your future, here are 12 things think about:

Continue Reading Twelve Things To Consider Before Filing for Divorce