Before this COVID-19 crisis hit, we already knew that the average credit card debt per family was over $5,000 and that about 60% of Americans did not have enough saved to cover an unexpected $1,000 emergency. Now as we shelter in place in an attempt to lower the curve, businesses across all sectors are taking a hit while unemployment numbers soar. As a result, the inevitable and harsh reality that we will all have to face is that financially it is going to take us all a long time to dig out from under this mess.
So how will married couples looking to split up manage? Same as they did after 9/11 or the Great Recession. When you don’t have savings available, you need to look at all your options for borrowing funds– and right now, family and friends are properly stretched to their limits, so I’d be very careful about trying to call in a monetary favor with them. Instead, talk to your financial advisor to figure out your options for getting some cash. Can you liquidate some investments or get a loan based on the investments you currently have? If you don’t have investments, is there a home equity line or line of credit you can draw from? Are you able to borrow or withdraw from your 401(k), and is that a good move now that the loan limits have increased and the 10% penalty for those under age 59 1/2 have been temporarily waived?
Once you figure out what is available, try to prioritize what needs to get accomplished. Recognizing that you will eventually need to establish two homes, try to work out realistic budgets for maintaining separate residences. And as part of that exercise, all parents should attempt to discuss a time-sharing schedule that will promote their children’s best interest. Before you actually commit to anything, however, get some legal advice with an experienced attorney that focuses on family law. Consults are not that expensive, and can help you navigate the four main issues a family will need to address as part of a divorce:
1. Custody– (1) What schedule will you follow for sharing the kids? Literally, you need to look at a calendar together and figure out the time-sharing arrangement that will work best for your family. There are some shared schedules that are popular, but there generally is no formula, and sometimes you may need to try a schedule on a trial basis before you can lock in the one that is best suited for your kids. (2) How will you make major decisions about their welfare—education, medical care, etc.? If you cannot agree, how will you break the impasse? Some people put in provisions for mediation or seeking the advice of a neutral expert, while others may want to have tie-breaking authority. In cases involving special needs children, parents have to be extra careful to take into account that child’s ability to transition, as well as any other special accommodations that might be required.
2. Child Support– How will you both contribute towards the children’s expenses? Thankfully, there are guidelines that each state follows, and most are available online. Generally, the formulas take into account (1) the income of each party; (2) the health insurance cost for the child; (3) work-related daycare/aftercare expenses; and (4) the time-sharing arrangement. This should be straight-forward, except when someone is self-employed or under-employed– that is when things can get murky. The courts can generally impute an income to someone that is voluntarily impoverished, and the consequences for non-payment can be severe.
3. Alimony– If someone needs support, and the other has a demonstrated ability to pay, then there really are just 2 questions we need to answer: (1) what is the amount needed and (2) how long will the payments last? Some states have guidelines that they use for alimony calculations, but many do not.
4. Property Division– How are you going to split up the assets (and debt) accumulated during the marriage? All the marital assets (including real property, business interests, investments, retirement, pensions, and all bank accounts) need to be identified, valued and then distributed either through a private agreement or by a court order.
Naturally, the more you want to fight about these issues, the more it’s going to cost. To get to a final agreement or Court Order, you normally have 3 choices: (1) Mediation, (2) Litigation or (3) Collaborative Divorce. In all three processes, the goal is the same– to address the 4 main legal issues stated above and get you divorced. What varies tremendously, however, is the cost and time it takes to reach a resolution.
Prior to this coronavirus pandemic, the courts were already experiencing major backlogs. Now that they have been closed for weeks and will not reopen before May in many jurisdictions, it is expected to take almost a year for them to catch up, which means if the average length of time to get a final hearing was 12 months before the crisis hit, you could now be looking at a 2 year wait. Meanwhile the national average for legal fees was about $25,000 per side, but that could be much higher going forward as cases drag on more.
Common sense dictates that now more than ever families need to consider less expensive alternative dispute resolution methods, and this sentiment is being echoed throughout the judiciary. Mediation is a pay as you go model that allows couples to set the pace and work within their budget using one neutral professional. Collaborative Divorce, which also allows the family to dictate the speed of the process, uses two attorneys taking a team approach, but will require retainers although they are considerably less than the deposits necessary when litigation is being contemplated.
Statistically, we already knew that less than 20% of divorce cases went to trial. And, according to Dr. Emery’s research over 2/3 of divorced couples are either amicable or at least cooperative. (Dr. Emery is the head of UVA’s Psychology Dept. and author of several books, including Two Homes, One Childhood). So, the odds were already in favor of reaching a deal outside of court– now I just think there’s an added economic incentive to cut your losses and move on.
Be smart about the choices you make, right now is not the time to be an impulsive hot-head. Rely on experienced professionals to help you mitigate the damages, and move on without committing financial suicide.
By Regina A. DeMeo