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0232: How Does Spousal Support Work? - Part 2

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In this episode, we are continuing the series on spousal support/alimony, whatever name you want to call it. And the importance of this episode is to cover the different types of spousal support or alimony available. I'm going to go through five different types, temporary support, permanent support, rehabilitative support, lump sum, and partial lump-sum support. So, let's jump in.

Let's start with temporary support. Temporary support, generally speaking, is - before or during the divorce process - you have a temporary support amount you may be paying or receiving. It's the support you agree upon before the divorce is over. Pretty clear. The important thing to know about temporary agreements, and I say this almost every day on calls or when people are negotiating, whether you're the person about to pay or receive temporary spousal support, be very careful about what you decide. The numbers that you agree upon for temporary support often become the support numbers you use after divorce.

And so, if you agree to a $1,000 a month, oftentimes the agreement after the divorce will be $1,000 a month. There is a lot less flexibility. Generally speaking, once you agree upon a temporary support number that often becomes the final support amount that you use after the divorce process. So, something to be very careful about there. Permanent support. Permanent support is what it sounds like. Permanent support is support for life. It's generally speaking, not as common as it used to be. If you were in a long-term marriage and you didn't work and you're near retirement age, there may be a permanent support amount, but if you are relatively young, then there usually isn't permanent support.

It's not something that's automatic or even expected the way it once used to be. That said, it still exists, and that's something that you should be aware of. Every state, of course, as always has its own circumstances in revolving permanent support. Now, there's something between temporary and permanent support that wasn't on my list that I want to jump in, is there's just what your final support amount is. So, it's just what you negotiate. It doesn't necessarily have a fancy name other than your alimony number. So, if your alimony is $1,000 a month for eight years, either paying or receiving, that's just the amount. That's not temporary, that's not permanent, that's just your amount. So, that is the alimony payment. I just want to make that distinction in there very quickly.

There's something called rehabilitative support. And it's not always known by that name, but I'm going to go through what it means because its meaning is very relevant to many of the discussions that I have, and that you may be thinking about when it comes to thinking about support and what makes sense. So, rehabilitative support is a very simple concept and that is either you or your spouse may need some additional training to get back on their feet and start earning a reasonable living after the divorce process. If they've been out of the workforce for a period of time, or if you've been out of the workforce for a period of time, it might take one, two, five years to get back on your feet or for your spouse to get back on their feet.

And so, in a rehabilitative support model, what often happens is you pay a higher amount of spousal support or receive a higher amount of spousal support for the first few years while that spouse gets their training. So, if they're going to become a paralegal, go back to college, get an advanced degree, some sort of free training, whatever the case may be. Well, you might say, "Well, I'm going to agree to a higher level of support for the first three years that person gets to get back on their feet." And then it's presumed that after those three years, they'll have their certification, they can earn a good living for themselves. And then the support amount declines or goes away or whatever it is that you negotiate. That's what's called rehabilitative support. And it's just there to allow someone to retrain and then start earning funds on their own. So, that's something to think about when it comes to support models.

The last two are lump sum and partial lump-sum support. You'll understand lump sum very clearly. A lump sum is paying all the support in one payment, instead of paying it over time or receiving all of your support in one payment, instead of receiving it over time. It's a topic I've discussed on the podcast before. If you haven't gotten the archives with all the podcast episodes, I encourage you to do that. There are some extensive details on how lump sum support can work and ways to negotiate it in that archive of all of the 200 plus podcast episodes, not all of which are public here.

But what's important about the lump sum support is let's just say, and I like to use simple numbers, you're going to be paying $1,000 a month for five years, which means you are going to be paying 12,000 a year or 60,000 over five years. A $1,000 a month is what it is. Well, the option is instead of paying 60,000 over five years, what if you just wrote a check for $60,000 and you're done paying support? There is no future support. You're separated from your spouse. You don't have to deal with at least that part of your relationship ever again.

Now, conversely, maybe you're on the receiving end. So, you're supposed to get $1,000 a month for five years, so you're supposed to receive $60,000 over five years. Well, maybe you might say, and I'm going to add a wrinkle into this example, you might say, "Well, I want all the money upfront because I don't trust my spouse or I don't want to have to deal with waiting for that monthly $1,000 every month, and I want my money now." So, you might say, "Well, just write me a check for $60,000." But maybe, I don't want to say better yet, but maybe for the sake of negotiation, you're willing to take $55,000 upfront or $50,000 upfront instead of $60,000 over five years. Something that you may want to think about. And so, that would be a lump sum.

And so, you get all your money upfront. You might not get the full value, but you get all the money today instead of, or the day your settlement is over or you come to a settlement, rather. You get all the money in one fell swoop, rather than waiting every month for that direct deposit or check to come in the mail. Now, the partial lump sum is also very simple and that is, it's not always financially feasible for people to pay all their support or alimony in a lump sum amount. It just isn't. And sometimes circumstances just won't allow that to happen. And so, what you can do in that situation is you can have what is a partial lump sum.

So, let's just say maybe you pay or receive three years upfront and then you get the rest over time, or you pay three years upfront or two years upfront and pay the rest over time. The plus side is you get a chunk of change in the short term if you're on the receiving end. The downside is your monthly payments are going to be lower going forward, but that's not really a downside mathematically. It's just a different way to negotiate the agreement. So, that's something to think about. And then sometimes that works too, where you give someone some and if you're the one paying it, you give someone, your ex-spouse, some starter money, and then they get to do that.

And then, in the long run, your payments to them on a monthly basis are much lower. So, something to think about. The reason that a partial lump-sum comes into play is that it's just another tool to have in your toolbox is it may not always be either-or. Sometimes you just can't write a check for a large support amount. It just might not be feasible. So, that's why you might do a partial lump sum. So, something to think about there. So, there are, as I said, different times, types, excuse me, of spousal support to consider. There is temporary support, permanent support. I interjected just what we call support, which is your final agreement, rehabilitative support, or money and more money in the short run for retraining, a lump sum support, and then, of course, a partial lump sum.

A lot of different options to think about when you are negotiating a potential spousal support agreement and different options really can apply really well during, rather I should say, different circumstances. And so you should think about what options may make the most sense for you and your circumstance because it's not always set in stone. There's a lot of ability for some creativity when negotiating support agreements and that creativity can help you actually get this divorce done, rather than extending the process out even further, because you're having a hard time coming to the right support agreements and what is financially feasible and acceptable for all parties involved.

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All right. Today, I want to talk about a very basic and essential topic that is worth your understanding and understanding the nuances of it, and that is spousal support. And when I talk about spousal support, I also mean alimony in there as well. Spousal support or alimony is the same term used interchangeably. Sometimes I'll refer to it as spousal support, sometimes I might say alimony, but know that they are the exact same thing. There's a lot of details that you should know about alimony or spousal support, and I want to make sure you understand the basics of it.

Let's start with just a simple definition. What it is, is a court-ordered provision of money for one spouse after divorce, or sometimes separation as well. Spousal support is a very important concept. You may be on the paying end of support, you may be on the receiving end. But oftentimes, people ask, "Well, why do I have to pay support?" or, "Shouldn't I be receiving spousal support?" And you should kind of understand why it exists. Very simply, one spouse pays the other money, usually on a semi-regular basis. And the reason it exists is that most of the time, both spouses don't have equal resources.

Usually, one spouse earns more than the other, and to make up for that difference, they have spousal support. Particularly, in a longer marriage where if you've been married for a long time, and if you're getting divorced and one spouse didn't work or barely worked part-time, that income difference can be substantial. Sometimes, in the hundreds of thousands of dollars a year a difference and so spousal support is there to make sure that the lower-earning spouse does not end up without any form of income after the divorce process is over.

Why it came into play, if you look up the history of spousal support, why it even exists, is actually, once upon a time, you could get divorced but oftentimes, if we are assuming traditional gender roles, the wife would be left destitute. The husband who has had some sort of profession many, many decades ago before divorce laws evolved would work the job, the wife would stay at home if you think of the traditional family as it used to be. Before spousal support, if a wife were to get divorced, the wife would have no money and they would have to start over with basically nothing. They would be destitute.

And so, spousal support was enacted by just about every state to minimize that from happening and keep that from happening in this situation of divorce, like other evolutions in divorce include no-fault divorce laws, which I've talked about on the podcast. It used to be the case where you had to prove a reason that you were getting divorced. Now you can get divorced for any reason at all in any state. Look, there are pros and cons and what not to everything, but just want to give a little bit of context there.

Now, the big question that I get asked a lot is, "How much alimony am I going to get?" And the answer to that is it depends. There are numerous factors that are considered. Now, every state has its own nuances to how spousal support is determined. Some of them, it's a little bit more formulaic. More often, it is almost just whatever you and your spouse agree to or whatever a court decides is the amount of support that's going to be paid, and there are very few guidelines. Particularly, for my California listeners... I work with a lot of people in California, a lot of people in New York... Now, I work with people everywhere but in those two states in particular people, the question is, "How much support am I going to pay?" And the answer is, well, we're going to have to figure it out and negotiate it because it's not a hard and fast rule in terms of spousal support. 

So there are a lot of nuances to the spousal support question and what financial status means, and trying to give a bunch of examples is a little bit tricky because everyone's situation is different depending on state and income level and savings and earnings, et cetera. So, I won't try and dive into 50 different examples of ways spousal support might be calculated just based on the financial status question, but something to think about.

The next issue is living conditions and lifestyle. Some people who make $500,000 a year spend $600,000 a year, which means they have a lot of debt. I also know families who make $500,000 a year who spend $80,000 a year, and they save a substantial amount of money every year. The point is, is that lifestyles can vary dramatically between families. And if you are in a situation where you or your spouse doesn't spend very much money, there may be the case for lower support amounts going forward. Now, it doesn't apply in every state and every situation, but something to think about.

Earning potential, is a very important topic in terms of how the spousal support conversation can go and one that we do a lot of coaching calls around, and that is, the spouse that's receiving support, what is their educational level? Are they able to earn funds on their own? Sometimes the answer is yes, sometimes the answer is no, or sometimes the answer is, well, after a few years, they may be able to. If you are a younger couple, let's just say, in your 40s is a good example, or younger, and you're getting divorced, it's not very realistic almost anywhere in the country to believe that the spouse who's receiving spousal support is supposed to never work again.

And so, the question becomes, what is that person's earning potential? Now, if you've never graduated college or don't have any formal education, maybe the answer is, "Well, we're going to assume you can earn a minimum wage job and that's your earning potential." But conversely, if you have a master's degree but have only been out of the workforce for three years, and you can probably get a job with a little bit of extra training or something like that, a six-figure job, then that could be factored into the spousal support calculations. So, there's a lot of question in terms of earning potential that needs to be determined by the spouse. I've also talked in the past on the podcast about vocational experts who will, if there's not an agreement about one spouse's earning potential, can come up with an agreement about earning potential and do an analysis of the spouse's possibilities in the job market. That is something that could factor into the spousal support discussion.

Age. Age is very simple. The older you are, usually the more likely that one spouse will be receiving support and also the more likely it is that that support may be longer. And, that the other spouse isn't expected to go find a high-paying job over time. Because if you're 61 and you're getting divorced and you're expecting to receive support, well, it's most likely the case that you will be receiving support for an extended spousal support for an extended period of time, and they're not expecting you to go rejoin the workforce and get a job, particularly if you've been married for a while, which also brings me to the last point, of the length of the marriage.

If you've been married for a long time, 10 years, 20 years, 25 years, 30 years or longer, the longer you have been married, the more likely you're going to receive some form of support and for a longer period of time. Now, it's not always a super clean and easy thing to figure out in terms of timing and how long and how much, but there is a correlation between the length of the marriage and the amount of support you receive. Sometimes I talk to people who've been married for three years or five years, and they want 10 years of support. That is unlikely. You will usually get paid for... Now, every state differs, some states have rules, and you should look up your state's laws, where if you've been married for over 20 years, it's automatically assumed that you're going to get support for the rest of your life. In other states, it's a fraction of the time. But one of the things to think about is how long you've been married and how much support you'll receive.

For planning purposes, I use an estimate. If the state doesn't have a law, I usually estimate around a third to a half of the time you've been married for support for planning purposes, both for the payer and for the person receiving. So if you've been married for 10 years, I assume usually somewhere between three and five years of spousal support. Now, every situation is completely different. But if I were doing just a rough guess, a rough calculation, someone were to come to me and say, "Here's the support agreement that's on the table. The state doesn't really have any real guidelines," if it's somewhere in that third to a half of the amount of time you've been married, assuming the couples are younger so meaning, excuse me, early 50s at the latest, but usually 40s or 30s, that would strike me as a reasonable amount of time. But as I said, every situation is different.

In the next episodes, I want to discuss some new other nuances of spousal support such as the different types of support, and what special circumstances may exist where spousal support might be longer or unchangeable, and some of the pros and cons of those different options.

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Almost half the people I talk to on a given day or week have yet to file for divorce. And they are in the planning phases and are trying to figure out their options. Now, I'm never an advocate for divorce, but there's one situation in which I encourage people to file sooner over later. And the reason is because, when you file for divorce, you generally have additional protections when it comes to financial decisions that are made. And specifically, most divorce filings include something that's called a temporary restraining order or automatic temporary restraining order, depending upon your state. And what that means is that neither spouse is allowed to make big financial decisions once the divorce is filed.

And the reason that's important is oftentimes I hear people saying, "Well, my spouse is thinking about doing this. Should I go along with it? Or how can I stop this from happening? Or how do I protect myself if my spouse does that?" And oftentimes the only answer is, if this is something you're really worried about, you need to file for divorce now to protect yourself and to prevent your spouse from making this particular financial decision that could be very harmful to your future particularly when divorce is on the horizon. And this temporary restraining order or automatic temporary restraining order, as I said, prevents your spouse and you as well, but your spouse from making big financial moves.

And what are those? Those could be something like selling property, transferring property, borrowing, like taking on a big debt, changing your insurance policies, withdrawing, that's a word I have a lot of trouble with, withdrawing large sums of money from bank accounts, destroying or hiding assets, paying down big debts, taking on big debts, making a big purchase, things like that. And the restraining order, which you get when you file, is there to protect you and to keep your spouse from doing those things. Now, it gets a little complicated because there are two things that are really important notes to think about. The first is that you can still do stuff that's in the normal course of business.

Had a really challenging case lately where the spouses were business owners and they were filing for divorce, and they were trying to figure out how to still continue... They had a very, very successful business, but they buy and sell, I'm just going to use the word property very generally, regularly. I mean, that was basically what the nature of their business is. They buy and sell lots of properties. And so, the question was, under this temporary restraining order, how do we keep running the business the way we need to run the business, given that basically, all they do is large transactions and how to make that work efficiently.

But other times I hear people saying, "My spouse is about to withdraw a bunch of money or transfer a bunch of money to here or there." And that's when that restraining order comes into play. But the point of all of that is just to say, the restraining order’s first important note is that you're still allowed to pay your groceries, pay your bills, pay your mortgage, do the normal things that you do to run a normal life. It's not meant to stop spending completely because that would be unrealistic. The second thing that you should know is that it's not perfect. And what I say by it's not perfect is, just because you have this restraining order in effect doesn't mean that your bank knows, doesn't mean your credit card company knows, doesn't mean that all of the institutions know what's going on.

So even though there may be this restraining order in effect, if your bank doesn't know, your spouse could theoretically make some big transfers to different places. And, yeah, that'll come up later in the discussion, but it is not something that automatically goes in place to every institution that you work with. And so, it's something that you need to be aware of and you need to communicate these things with all of your various service providers to make sure that they follow through with what's on the instructions. Now, of course, there will be or there can be consequences down the line if your spouse violates this restraining order, this temporary restraining order. However, the issue is that you have to deal with that later. Meaning, it could take a month or two or several months to get back what has been taken even after that restraining order.

And I'll give you a scenario that comes up almost every week or two that someone calls me about, is they say, "Hey, my spouse is from a foreign country." It doesn't really matter which country, but another country. "How do I protect myself?" And the big issue is, that spouse could at any moment really, they could take the... Before the divorce is filed, they could just say, "Well, I'm just going to wire all of my money to this country and then I'm going to move there and what are you going to do?" Well, that's a real possibility. And while you're married, and there's no divorce action that's been filed, that's a theoretical possibility and a real one.

But in those types of cases, I'll always say, look, your best hope is to file, or oftentimes your best hope is to file and then also send this order directly to your bank the same day to prevent a big wire transfer from going out that you don't sign off on, and the money disappearing and your spouse disappearing and you're out of luck. So it's something to think about. Another scenario that comes up all the time is, you know that divorce may be on the horizon in a year or two. It may not be immediate, but as I said, about half the people I talk to, some are close to filing, but some are several years off. And a common question is, "Hey, we're thinking about refinancing the house." And I'll say, "Where's the money going to go? Are you going to take money out? Where's that money going to go? Is this going to be a smart decision?"

And I'll walk through a bunch of questions for the individual person, but I'll say, "Hey, if you're taking out $100,000 or $300,000 as part of the refinance, is that going to be a smart move for you? And is that really what you want, particularly if you get divorced a year from now or two years from now, is that going to hurt you financially? And how do we stop your spouse from doing this?" Now, another thing to note is, as I talk about these temporary restraining orders is, if you file for a divorce because you want one of these in place, it doesn't mean that you have to rush the divorce process most of the time. You can file just to have this in place, and then work very, very slowly on the other stuff because you just don't write from a timing perspective.

But in terms of protecting your funds and protecting your money, if you're in a disadvantageous position and you don't want something to happen, or if your spouse is about to, I don't know, go back to school and take on a big student loan. You don't want that to be marital property, or that could be something else, or just take out a big debt. There are lots of different scenarios in which this could come into play. And so, I want to make sure you're aware of the importance of a temporary restraining order. It's almost in every divorce situation, but you need to think about it, know your state's rules, do your research, and it may be a very useful tool for you as you figure out the appropriate timing for filing for divorce. And it may be a good way, a useful way, to protect yourself going forward.

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A question that's been coming up quite a bit is what day or what month do I use to value all of my stuff? What day do I pick to value the house, value the retirement account, use what numbers in the bank account? Is it June of this year? Is it April of last year? Is it when I filed for divorce? And or is it when the trial date is coming up? What day do I use to pick to value all of our stuff? And it's a really important question and a really complicated question because the date that you value all of your stuff can have really important impacts. I'll give you just a few examples so you know what I'm talking about. Let's just say you separated two years ago, and now you're finally getting to the divorce negotiation, which is a very common situation.

Well, two years ago, your house may have been worth $500,000, but let's say now your house is worth $700,000. And you're planning on keeping the house. Do you use the $500,000 valuation from two years ago, or do you use the $700,000 valuation? Or a more complicated subject that I've been dealing with a lot lately is people who have stock options. This one's a very tricky one, but if you have stock options, those options often have certain grant dates where you get more options or certain exercises dates where those options get a lot more liquid or have more value. And so, one of the things that gets complicated is, well, when you're trying to get divorced or you or your spouse has stock options, not only what date do you use to value those options? Because generally speaking, oftentimes those options can fluctuate substantially in value over time, but also how many options are actual marital property versus not?

And trying to figure that out can be very important. And the reason I bring up this subject is it is something that you should be thinking of. And then the third example that actually happens is a very simple one that actually doesn't have a lot of complications, but something you should be thinking about, which is, let's just say, I was talking to someone this morning about this. Let's just say you and your spouse are going to negotiate things yourselves, and it's relatively amicable, all things considered. And you're trying to figure out, well, what day do we use to pick for the bank accounts? Do we use last month? Do we use three months ago, whatever it is? And we just want to make sure that we're all on the same page and that could be a simple situation, but the point is, is that all of your property fluctuates.

Oh, and then one more, sorry, I said that one more example, but if you think about a retirement account or a stock brokerage account or an investment account. Investments in your account fluctuate every day. And so if you were to calculate your investments on April 5th, that same investment account will have a totally different value on April 6th. And it could have a very different value in July of the next year. So there are a lot of things to think about when it comes to what date you pick to value assets. And I just want to give you some things to think about. And the important thing about this episode is to know what date to pick and to be thinking about what date to use. And it may give you some thoughts in terms of what timing you should pursue when it comes to your divorce process.

And another way to think about the date that you value the assets is your separation date. And the goal in your divorce is to have a date where all of your assets, all of your debts are valued as of that date. So there is no confusion. So things go up in the future, that's not something that gets discussed. If things go down in the future, that's not something that really gets discussed either. The goal is to have it consistent going forward. Now, what is extra complicated about this topic is two things. One is that every state has very different laws as to how the separation date or the date that you value assets gets calculated. On top of that, it can change within the divorce process and depending on your state's rules.

And so you need to really understand and talk with an attorney about the ways that your assets may be valued and sometimes revalued. And I'll give you some examples of what the options might be. So in some states, you use the date that you separated. Now, what does separation mean? For some people, it's very clear. The data separation could be the date that one spouse moves out of the house, or I talk to plenty of people where one spouse lives upstairs. The other spouse lives in the basement. And you could use that as the date of separation, but oftentimes you are still living under the same roof, pretty much in the same space. And it's hard to determine what that date of separation is. And sometimes it can be a big fight. And when I say fight, I'll say negotiation about what the date of separation is because whatever date you pick could have a very big impact on how much money each spouse ends up with at the end of the day.

So the date of separation is one option. A second option that comes up all the time is a very clean and easy one to understand, which is the date you filed for divorce, right? So the day you file, that can oftentimes end up being the date that you use to value all of your houses, your bank accounts, your credit card debt, your retirement accounts, et cetera, would be on that date you file for divorce. A third option that can come up as well, is the date, or sometime right before a trial. So oftentimes if you have, or sometimes if you have a trial date set, your state may say, and as I said, all of this is very state-dependent. So you need to figure out the rules in your state, but your state may say that, okay, well, we have a trial coming up in nine months. I'm just going to say the trial for sake of example is going to be in December. So they might say we're going to value everything as of October and use that as the value of all the assets.

And if you're coming up on a trial date, you may have been in this process for a year, two, three years or longer to get to that date. And therefore, that's why they decide to do everything closer to the actual trial date because they know that things have fluctuated quite a bit. And then finally, the last option is oftentimes, or sometimes you can decide upon a date that you want. So if you and your spouse agree that this is the date that we're going to use for separation to value all of our assets, then that's the date that you pick.

And it could be as simple as that, but both of you have to agree. And it's not always super simple to get both of you to agree. So there are lots of options there. Could be the date of separation, could be the date you file for divorce, could be a date right before a trial, or could be a date that you and your spouse agree upon. But an important point to know is the date that you separated, the date that you value all of your assets can have a huge impact on your divorce and how much money each person gets. And one of the places that comes up a lot of times in the coaching discussions and divorce strategy discussions is what date should we be pushing for? And why?

Because if you have stock options that grant in three months, well, maybe you should file for divorce now to protect those options that you get granted to you in three months, right? Because they wouldn't be included in the marital pile. Or maybe the question is, well, we should push for a date later down the line because there are benefits to waiting in your particular situation. It really just depends. And it depends on your situation, depends on your state, but it's a topic for discussion that can oftentimes get overlooked by one party. And I want to make sure that you are aware of it and thinking of it when it comes to determining well, how much is all of this stuff really worth?

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It's been a few months since I recorded a new episode and not because I haven't been working, but because been working a little too much and got behind on the podcast episode. So apologies for that. Thank you to all 0f the people who I've been speaking to over the past several weeks and months, there've been lots and lots of good questions and, and coaching calls coming in. And I want to get back in helping educate you on the different intricacies of the divorce process. And this episode specifically, I want to talk about some subjects that have been coming up quite a bit.

And the first one I'd like to talk about is how do you keep your separate property separate? And also, how do you know if a separate property or what's being called separate property is actually marital property. And if you've been listening to other episodes, you know what I'm talking about in the context, but the big issue is, let's say you had some money.

When I say property, it could be something like money. It could be a physical property. It could be, a retirement account, a car, whatever. Let's say you had something before you got married. How do you make sure that if you're now, unfortunately, facing divorce, that is still considered separate property? What kind of things can you do? Or should you be doing? And conversely, if your ex-spouse, for instance, is saying, well, this is separate property, but, but you think it's actually something that you should be splitting between the two of you. How do you broach and go down that discussion? It's a very common topic that comes up every, every few days in terms of people that I get to speak with. And there are a few things to consider here.

And let's take it from the perspective of you have some separate property. Maybe you got an inheritance as a, maybe you had something when you got married, there's a lot of different types of separate property. How do you make sure that it stays separate? A few things.

The first is to keep good records. Now keeping good records, doesn't ensure that something is separate, stay separate. However, keeping good records can ensure that you can at least be able to prove the argument one way or another in terms of what is going on. So you need to make sure that you can keep good records. Now it becomes a challenge when sometimes you've been married for, someone called me, I spoke to just the other day, who'd been married for 31 years and there was a separate property question and there's no way to get the records. And so we were talking about some advanced strategies in terms of, getting affidavits from a parent who's still around and, and other siblings who are on the receiving end of this inheritance when everyone got the same amount, et cetera, et cetera. In lieu of being able to have actual records, they had to approach a different direction.

But if you have things like bank accounts or old account's statements, some of these institutions keep account statements for, for a decade or more, or if you walk straight into your bank, sometimes they can pull if you've used the same bank for a long time and they're still around. Oftentimes they have good records that go back further than what you may build, ask or access online, or just to get when you stroll in, if you just talk to a casual person at the bank. But anything you can do to get old records, old communications that indicate when you received some form of property and how much it was at the time it can bolster your case.

The second thing is to avoid co-mingling is a term that if you listen to the podcast, you should've heard before. But co-mingling is just the idea that you may mix your separate assets with your marital assets. Simple as that. And what does that mean? Well, let's just say you got an inheritance and then you got an inheritance of $100 and you put 50 of it into your joint checking account. Well, now you have co-mingled that money. And then you spend that $50 on groceries. Well, is that still separate property? And the answer is it gets really tough and you're probably dealing with marital property at that point. And there's not much for you to do. But if you keep that a hundred dollars that you got as an inheritance in its own bank account, and you didn't ever put your spouse's name on it and you didn't touch it, if for, for normal family purposes, then you will have a much better shot at keeping that account separate.

Now, of course, you always need to have your records and you need to always keep that account in your name. And if you're adding in some tracking to that account, all of a sudden the math gets messy unless you have those records, but it is something that is doable. And the cleaner you keep that separate property, the easier it'll be to prove that it is separate property in the context of divorce.

And conversely, I said I was taking this from the perspective of the person who has separate property. Well, if your spouse is the one who's claiming it's separate property and they don't have these things that present a good case for you to say, well, hold on a second, maybe this isn't separate property, this should probably, or may need to be considered marital property. And so for these different issues or different tips, I'm giving, if you're the person who's on the other side of this, these are the things that you should be thinking about, bringing up to advocate for yourself to make that separate property marital. Particularly if some of these things don't exist.

So one is good, keep good records. Two is to avoid co-mingling. The third thing is to keep track of income and dividends from separate property. And now this is a very tricky one, and this is very state-specific. And I always say, when someone calls, I say, this is technical. And when I say this is technical, I mean, each state can be very different in how they interpret this. And so you really need to have a knowledgeable lawyer in terms of understanding what I mean by this point.

Keep your income and dividend separate. Well, let's just say you have a bank account with $100 in it and you get 1% interest a year on that account. Well, with that 1% interest, you're earning $1 a year. Well, that $100 that is in, in some states, the $100 is, is almost always going to be separate property. However, that $1 in interest in some states is considered marital property. So if you're earning interest on an account, the $100 is separate, but $1 is marital. And if you think about that over time, where after a year or two, you have a little bit over $102, year three, et cetera, et cetera.

Well, if you think about those earnings over time, that can add up to become a substantial amount. I'm just using the context of a simple savings account, but some of you have retirement accounts to pay a lot of dividends and interest, and there's a lot of appreciation in them. And you need to really have a discussion with your attorney as to, well, is it all separate or all marital, or is there some combination of the two? Because sometimes it is sometimes that separate property that you thought you did everything right. Well, that income and dividends may actually be marital property that you have to split. And now all of a sudden the picture certainly shifts for you.

So something to really think about and know the laws in your specific state on that one. And, and it gets tricky. And so what you may want to do if you're thinking about, or if you have separate property, I should say using my example of you have $100 in separate property and you get $1 in interest a year. Well, maybe you want to put that $1 in interest always goes to a different account now that different account, might still just have your name on it, that different account you might not touch anyways. However, from an accounting perspective and trying to figure out what's part of the marital pool later down the line, having that separate account is a good way to pursue that and to figure that out.

The fourth thing I want to discuss is to consider getting a postnuptial agreement. Now, look, postnuptial agreements are very tough. Now, sometimes you may have a prenup which deals with these things, but if you're listening to this podcast, getting a prenup is a little too late. But if your state allows for postnuptial agreements, that may be a way to keep separate property separate. Now not every state allows for postnuptial agreements, but if your state does, and your spouse is willing to negotiate with you on it, then that is something to consider that can make the math. And at least simplify part of, this part of the divorce discussion later down the line. Now postnuptial agreements can happen in a few different circumstances that I see most commonly. It's hard to be married for eight years. And then in year nine, you say, I want a postnup. That's, that's a tricky proposition. I mean, if you can do it then great, but that's normally not the situation in which I see postnuptial agreements.

In one of the situations, I see postnuptial agreements a lot is right at the time of separation. So, if, if there's something going on, for example, I'll give you an example of something that happened recently as a business owner separating from their spouse. The only thing the business owner wanted is that if that business owner does some sort of deal with the business after the time of the separation, that the spouse isn't entitled to that now. The spouse still gets any portion of the business before they separated in their value, their fair share. But in this case, this business person wanted to, keep things separate and, and that's going to enable this person to, to run their business as they see fit for as long as they're separated. I mean, it's, it's a question of they're, they're still trying to work things out so they may get back together. They may get divorced. They don't know. But as long as they're living separately, they got a postnup.

Or, another time I see postnups is, is after a new marriage when you're older. I mean, there's a window of time where it's acceptable to ask for a postnup, but there are, if you are in a position where a postnup makes sense, and you may be able to ask for it, a consultant attorney, and it's a good time to think and helps can help keep separate property separate.

So those are just some things to think about in terms of keeping separate property separate. Or as I said, if you're the person and your spouse are arguing, well, this is separate property and they can't provide some base level information or provide the details on some of these things. Then it may not totally be separate. It may actually be marital property that you're, you're entitled to a sheriff.

Now, the last thing I want to mention on this point, that's, that's very relevant is that sometimes things aren't clear and there are shades of gray. And so oftentimes separate property is not 100% separate and there is a marital component to it. I'll give you a very common example. Let's just say you had a house before you got married and that house you, you, you bought before you got married. And then, a few years later, you get married. Your spouse moves into that house. You have your kids, blah, blah, blah, blah, blah. Now let's say that you decide to renovate the house or put an addition on the house you put in a new deck or a new roof, or a new, a new floor or, another add-on, addition to the house, whatever the case may be.

And that addition to the house substantially improves the home's value. Well, under that case, oftentimes maybe I'm just making up these numbers, but 70% of the house might be separate property, but the 30% of the house value may be meritable property because of some of those additions you made to it in some co-mingling and gray areas. It is a very tough and confusing and complicated area of family law that applies all the time. And so, the goal I always talk about with people is, all right, well, let's figure out all the ways we can argue that this is going to be separate property, or if it's your spouse, all the ways we can argue this should actually be meritable marital property. And let's just make the best case for you. Because oftentimes, it's not going to be 100% in one person's bucket or 100% in the other person's bucket. And there are a lot of shades of gray when it comes to separate property and keeping separate property separate and, and marital property.

So those are the four things just to think about and keep on the top of your list is the top of your mind, as you're thinking about separate and marital property and the best ways to keep it separate or prove that it's not separate. First is having good records. The second is to avoid co-mingling. The third is keep track of the income and dividends. And finally is a postnuptial agreement if that is available, or if you had one in place.

0227 - Infidelity, Divorce, and How to Prepare - Interview with Dr. Marie Murphy, Relationship Coach

In this episode, we have an interview with Dr. Marie Murphy, Relationship Coach, and Host of Your Secret is Safe With Me podcast, a non-judgmental talk about infidelity. Learn more aboutMarien here: https://www.mariemurphyphd.com/about.  

Visit us at divorceandyourmoney.com for the #1 divorce resources in the USA and get personalized help.

Dr. Marie Murphy: Hi, everyone. I'm Dr. Marie Murphy. This podcast is all about expanding the conversation around infidelity. I'm a relationship coach and I specialize in helping people who are having affairs make decisions about how to move forward that are truly right for them. On this show, we feature tools and guidance from my coaching practice, as well as advice from other professionals whose work pertains to the sometimes complicated business of romantic relationships.

Today, I have the pleasure of talking with Shawn Leamon, host of the Divorce and Your Money podcast. Shawn received his Bachelor's degree in economics and philosophy from Dartmouth College and his M.B.A. from the I.E. Business School in Madrid, Spain. Shawn is a certified divorce financial analyst and provides financial advice for people who are divorced podcast and his work with one-on-one clients. You can learn more about Shawn's services at DivorceAndYourMoney.com.

In his personal life, Shawn loves to push his physical and mental limits as an ultra-endurance athlete, and as an avid traveler, Shawn spends his time between his offices in Dallas, New York City, and Hanover, New Hampshire. He can often be found wandering the globe, and of the more than 20 countries he has visited, Brazil and Monaco are two of his favorites.

Before we get to today's episode, I want to let you that today's show is brought to you by Marie Murphy, Ph.D. Relationship Coaching. That's me. I provide shame-free, blame-free, non-judgmental relationship coaching. You can talk to me about the things that seem too messy or weird or stigmatized to share with your best friend or your spouse, or even your therapist, including but not limited to matters related to infidelity. To learn more about my work, go to MarieMurphyPhD.com.

Now, today's episode. Shawn, welcome, it's great to have you here!

Shawn Leamon: Hi, Marie! Thank you for having me.

Dr. Marie Murphy: It's a pleasure. You have an awesome book that is called Divorce and Your Money, if I'm not mistaken.

Shawn Leamon: That's right.

Dr. Marie Murphy: Right? Yeah, okay, great. I recommend this book to anyone who is staring down the barrel of divorce. It is clear and packed with hopeful guidance, and one of the things that's really interesting that you talk about is the value, and often the necessity, of having a really good divorce lawyer, but you also talk about the limits of what attorneys provide clients who are going through divorces. I think you quoted an attorney that you know as saying, "We attorneys went to law school so we wouldn't have to do math," and I can certainly relate to that, even though I'm not an attorney.

Can you say more about the limits of what attorneys provide, and why it's important to have a financial advisor, as well?

Shawn Leamon: Most certainly. I think at a high level, there's three major issues that go on in divorce. One is, of course, the emotional side: the relationship, your own emotions, emotions of your spouse, kids, et cetera. Of course, you should have help with that aspect.

The other element is divorce is, by nature, a legal transaction. Marriage is a piece of paper. Divorce, conversely, is another piece of paper that says that you're divorced. There are a lot of legalities to how to split up a couple and all that entails, and that's where having a good lawyer will help you.

Then on the other side of it is the third part of the financial element, which is all of your money. You're talking about houses, retirement accounts, how much support someone may pay or receive; what you're going to work later in life; are you going to move? How are you going to provide for the kids long-term? Is there a college fund or a retirement that may be derailed because of this process?

So, there are always many, many, many financial considerations in the divorce process, and it's very good, both during the divorce process, but also after the process, to work with a financial advisor because the things that your attorney is going to be negotiating for you, or at least many of the things the attorney is going to be negotiating for you, are going to affect you for a long period of time, perhaps many decades. So, getting those key financial pieces right and knowing what you should be thinking about during the process is very important so that you have a good financial future afterwards.

Dr. Marie Murphy: Yeah, cool.

Now, one of the things that I hear from clients fairly often, which you may hear as well, is their fears around divorce. Often, I hear people telling me, well, this isn't the right time for me to get divorced, and when I hear that, it's often because someone is saying that they really just don't want to deal with the discomfort and disruption that will probably inevitably come if they decide to go through with the divorce. What I always tell people is, look, you have a choice. You never have to get divorced. Even if you're unhappy in your relationship, even if you want to leave your marriage, you still don't have to do anything about that.

I work with people on the emotional side of these kinds of challenges, which is critical, but often what I find is that folks who are in this position of really resisting the idea of divorce or fearing the idea of divorce, even though they want to leave a marriage, is that they don't really know what all goes into the practical concerns, and so they're intimidated by what they don't know about the practical elements of the process.

One of the things that I found really interesting in your book is that you talk about why it might be a good time versus a less good time to get divorced. What are some of the financial reasons that make a better or worse time to go through a divorce, or initiate a divorce, I guess?

Shawn Leamon: It's one of the hardest questions and issues to deal with, is when to start this process. There is a lot that goes into ending a relationship. You mentioned some people might not know what's there or be ready to deal with some of the complications and hassles and everything else that is associated with it, and even if you don't know quite whether or not you're ready, or at least you're in the throes of things, one of the things that's very common with me, and with an attorney, as well, is doing your research and starting to figure out, all right, well, here's how this process may look. Here are some of the big questions I may be thinking about and starting to get some preliminary answers.

I'll give a financial version of that, which also gets to my broader question and some of the broader financial things. I always ask someone, "What do you want?" Let's assume... what do you want your future to look like? If you're in your 50s, for instance, you're probably going to live another 30 or 40 years. That's a long amount of time. Do you want to stay in the relationship as is? Do you want to make modifications to it? I'm not going to make any judgments because that decision is very personal and there is a lot of intricacies to that, but what is it that we're aiming for in how you want the rest of your life to play out? If you're even younger than that, if you're in your 30s or 40s, there's a lot of life left to live, regardless of your age.

So, the question in terms of financial things to be thinking about... well, there's a lot of considerations, one of which is there's two people who are part of this relationship, and so, if one person wants one thing... and I'm speaking from a financial perspective, as well, when I answer this... if one person wants one thing and you want something else, how are you going to figure that out? Sometimes divorce is the only option in that scenario, but there are sometimes alternatives.

The other thing is, hey, some states... and this is where I also say do your homework and start thinking about it... some states have some very potentially severe... I don't want to call them penalties, because that's not quite the right word... but there are milestones in a marriage that can affect how assets are split, how much money gets paid, how long money gets paid, what happens with kids. If we're thinking about... if you have kids who are, generally speaking, under 18, though that varies depending upon your state, there's a child support consideration, versus kids who are off in college where you don't really have to discuss that as much as part of the divorce process. If you want to move states... I mean, there's so many different things to start thinking about when it comes to that when decision, but you really have to... and I encourage everyone... is just do the homework.

A lot of times, if you do a lot of research upfront... and I talk to people who may not be getting divorced for five years, but because... maybe they want to stay together and stick around for the kids until the kids are out of the house. But they may be thinking, well, hey, if we get to that 20 year mark in our marriage and we're in a state where that 20 year mark could mean the difference between temporary alimony or spousal support and permanent spousal support, that becomes a really big deal in terms of doing things sooner or delaying things, depending on if you're receiving or paying.

There's a lot to think about when it comes to that decision from a variety of things.

Dr. Marie Murphy: Yeah, for sure.

What do you say to people who come to you who really want to be done with their marriage and done with their spouse, but their circumstances are such that it might not really be an ideal time to go through the bureaucratic process of divorce?

Shawn Leamon: There are options. One of the things that's important is having a clear agreement as to when things are supposed to be split, because one of the important financial considerations is, when do you stop the clock in terms of assets and valuing assets? What I mean by that is, if you have... a common example is, let's say you're contributing $1,000 a month to a retirement account. We'll try and keep math very simple, particularly in a verbal conversation.

Let's just say you're contributing $1,000 a month to a retirement account, and you're married. Well, 500 of that 1,000 is going to probably be your spouse's property when you split. So, if the clock is perpetually ticking, then you're continually contributing assets to that merit of accrual. But if you come up with a separation date or a separation agreement, and work out some logistics with your spouse, if it's possible... it's not always possible to do so without filing... you may be able to save yourself some funds in that category, and sometimes people do that for years. It's very much a question of when does the clock stop? A lot of times, the clock keeps running, and from a financial perspective, if you're getting a big bonus at the end of the year or the early phase of a new year, or if an asset is about to appreciate, or if you're... I know this is kind of a slight tangent, but if you're getting inheritance or a big gift, inheritance is generally excluded, but making sure that you handle those things properly is very important in that perspective, as well.

Dr. Marie Murphy: Yeah, so what it sounds like you're saying is even though you may have all kinds of emotional reasons for avoiding the divorce process, or delaying, I guess you could say, the divorce process, there may be some very sound pragmatic reasons for being proactive rather than resistant to acting.

Shawn Leamon: Yes, and I'll also give kind of a weird one, but it actually affects a lot of people, which is what people's work schedules are... not work schedules, but actual jobs. If two people are working and have reasonable incomes, that can have a big effect on terms of how much support is paid or received, but if one person has been out of the workforce for a long time, or recently got laid off and prospects aren't good, that can affect how much support gets paid or received be someone. There is a timing element to that, too, or if someone is graduate school and they're about to finish up, and they're going to have the capacity to earn a good amount of money, there's some things to consider, or re-training considerations where if someone... let's just say the kids are finally graduating, and in two years, you're going to go back to school and get a degree, or your spouse is, that could be an important financial decision to keep in mind in terms of when to separate or when not to if we're just talking numbers.

Dr. Marie Murphy: Yeah, interesting.

Okay, let's talk about infidelity. Since a lot of my clients are the one in the marriage who is cheating, there is often some concern about how infidelity will bear upon the divorce. Again, I think the folks that I work with have varying levels of knowledge about what this means in their state and what this means in the nitty gritty details of the division of assets, so tell us what this looks like.

Shawn Leamon: There's good news and some bad news, and it really depends on where you live. That's the other thing to keep in mind for people listening. Every state has different laws. There's general frameworks that are true for most states, but still, there are unique instances in a lot of states.

Now, the good news is all states have no-fault divorce laws, which just means that you can get divorced for any reason, and you don't have to prove anything, and even if someone does prove something, usually it's not a huge effect when we're talking infidelity. I say usually because there are particularly a handful of Southern states, is where you see this most commonly, where there can be some additional impacts if you can prove infidelity, and that can affect the asset split and can affect some other things. Now, it doesn't mean that a split is going to become 100% lopsided or something crazy, but it does affect things on the margin for some places.

Now, on the other side of that, probably 45 out of the 50 states, it has zero impact... almost who cares? There's a very practical reason for that, and the reason is up until 20 years ago, roughly... and of course, this evolved over time over a longer period... but if you had to prove infidelity or disprove infidelity, that was a huge part of the divorce process. Many, many thousands of dollars and hours and time were spent in the '50s, '60s, '70s, and '80s, and to some extent, the '90s, of who did what and trying to prove that, and that adds, on top of everything else that happens in divorce, another layer of complications, so... there was a movement.

Dr. Marie Murphy: That's a lot of legal discovery.

Shawn Leamon: Yeah, so there was a movement that every state was basically like, this is not a productive use of court time, and we're just going to say you can get divorced for whatever purpose rather than having to prove it.

Now, to take it a slightly different direction, here's what can come up can affect you, and it has to do with... the technical term is dissipation of marital assets, and that is if you have a girlfriend or boyfriend, and you are taking marital funds... or in between... but if you are taking marital funds and you are spending them on lavish vacations, gifts, cars, apartments, or a house, or whatever that is, and that's marital money you're spending, and your spouse finds out about it or can prove it, you can end up having to repay that money to your spouse later down the line.

Now, the good and the bad... if I'm being quite frank, this is very hard to prove, and it's very expensive to prove, but I've seen people who have spent hundreds of thousands of dollars on... sometimes it's something as simple as, and I don't mean to use the word simple, but as straightforward as an escort. I've seen people spend tons of money on escorts before, and that comes up, because that's relatively easy to trace when it gets into the hundreds of thousands of dollars. But if it's $10,000 here or a $1,000 there on a business trip, it's complicated. It's doable, but there comes a point, too, in this whole process, with anything in divorce, where it's like, hey, is it really worth getting a forensic accountant... is this worth spending $20,000 on a forensic accountant to find $20,000 in money that may or may not have been spent on an affair?

There's intricacies to it, but it is something to be aware of, that if you are spending a bunch of money on an affair... or another version of it; I know it's a little bit outside the context of your expertise, but if someone is a big gambler, that's another version of dissipation of funds, and that's going to Vegas every weekend and blowing lots of money; same idea as infidelity. You can get penalized for that in part of the divorce process.

Dr. Marie Murphy: Interesting, yeah. That makes sense.

Let's kind of step back from the infidelity thing and talk about the general pragmatic concerns for anybody who thinks they're potentially going to be getting divorced or is definitely about to be getting divorced. Where does one start? Let's say you're pretty sure it's happening. Where do you begin? How do you start to get organized? What are the key things that you need to do first?

Shawn Leamon: There's a few things. The two main things I would do... one is, regardless of how this process goes, get all of your financial documentation together that you have access to. Tax returns, just your home information, your retirement account information, bank accounts... whatever you know of that you have from a financial perspective, get it, because it's going to come up as part of the divorce process, and if you don't necessarily have it, because I work with a ton of people who may not have been involved in the finances, while you're still under the same roof, or somewhat under the same roof, or have access to things, put as many clues together as you can, because that can be very helpful for you further down the line.

The second thing I would do is consult with an attorney. Now, an attorney is going to ask for all the financial information, which is why I say gather that first. You're going to want to make sure that... and there's a lot of discussion about attorneys and what the appropriate attorney is, and who you should pick for your situation... but you should be very aware at a high level of the legal aspects that are going to apply to you and your situation.

It could be child support amounts and duration. It could be how things are going to be split. It could be something as fundamental as, there's actually multiple ways to get divorced and different divorce processes. So, having an attorney guide you through those options so that you can start thinking about them will be very good. It doesn't mean you necessarily have to hire that attorney day one. You may end up consulting with multiple attorneys, but you do need to understand the basics of what you're looking at and going to be dealing with so you can prepare yourself for what's to come, because it's going to be, for most people, a long, a difficult, a challenging process.

The other thing to be considering about all of that is, like to say, divorce is going to be over one day, and you're going be living alone or separately or in a new form, and so, if I were to add a third thing to that, it would be to start formulating what that life looks like in a post-divorce world so you can make the right decisions now to set yourself up for the future.

Dr. Marie Murphy: Yeah, I think that's so important. What is it they say? Begin with the end in mind. Have a vision of the future that you want to experience, even if it probably isn't going to be your reality tomorrow or next week or next month. Start to cultivate the vision of what you want your life to be like going forward. I think that's so important.

Shawn Leamon: Just one little, small, small actually addition to that... sorry to cut you off.

Dr. Marie Murphy: No, no, please.

Shawn Leamon: That is one of the most important things. I talk to people every day across the country about divorce issues. The question I ask pretty much 100% of the time is, "What do you want?" What do you want your life to look like? I can provide some commentary here and there, but ultimately, you're going to be living your life, and we just want to make sure that all parties, be it therapists or emotional, legal, and financial, that we mentioned before, are guiding you in the right direction given what you want.

Dr. Marie Murphy: Yeah, totally. I don't know if you encounter this with your clients, but something that I see fairly often is, people have a pretty good idea of what they don't want. They're pretty well aware of what isn't working for them, but the vision of what they might want instead is often pretty underdeveloped. I see all kinds of reasons for this. People have lived for decades believing that they have to do things in a certain way, or that it's not really okay for them to pursue their own desires, or that it's selfish for them to want things other than what their partner or soon-to-be-ex-spouse thinks they should want, et cetera. Do you see that, too?

Shawn Leamon: Unquestionably, and deciding what you want is not an easy thing and that's beyond my expertise, but what I do tell people, and I have this conversation multiple times a day every day, is I say, "Give me your top three, top three things you want, and give me your bottom three. What are the three things you don't want? Let's just start with that. We can figure out the rest later."

I'm just very quantitative. I can't help you through all of figuring that out, but give me three things that we can work towards and three things we should try and avoid, and we'll go from there.

Dr. Marie Murphy: Yeah, I love it. That's a nice, concrete starting place.

I, of course, am very qualitative. One of the things that I do do with clients is help figure out what they actually want. What would you choose? What would it be like if it were possible for you to believe that it's okay for you to want things, and that you can want whatever you want? That's part of the joy in the work that I do, but quite frankly, for a lot of people, that's hard, and that is where more of the work ends up being than actually the nuts and bolts of getting through a process like divorce where there are specific things that you have to take care of.

It's great. In a sense, it's challenging to change your conceptions of what's possible for you and what's possible in your life. Getting beyond our self-imposed limits can be quite a task, but it's so worth it. I'm sure you see this, too. I'm sure you see people coming out the other end of the divorce process and surviving and thriving in ways they never could have imagined.

Shawn Leamon: Everyone is going to come out of the other end of the divorce process, which is great. That's one of the most encouraging things, is I always joke, but I'm dead serious with people... the day we never speak again is a great day, because you're done with your divorce process and you get to live the rest of your life. But also because of that, you are going to be forced to deal with the nuts and the bolts, and you just have to deal with them.

There is an element of not facing reality, or at least not wanting to, because it's very, very difficult. I'm not saying it's easy, and it may take a lot of time to wrap your head around what's going on, sometimes years. But at a certain point, divorce papers are going to be signed; you're going to be living your independent life. You're going to have to deal with them, so do it sooner over later is just the way that I always put that.

Dr. Marie Murphy: Yeah. Yeah. I love that you emphasize at some point or another, you just have to accept that this is reality, however unexpected or painful or inconvenient it may seem. Yeah.

All right, let's talk about what you mentioned a little while back, about the actual options for the divorce process. What are your options? What are the different ways that you can approach this?

Shawn Leamon: There's a lot of different options in the divorce process, but what it really comes down to... and I'll give you a few examples... but what it really comes down to is how much you and your spouse are willing to work together without added conflict, right? There's no question that you're getting divorced for a reason. I understand that. Everyone understands that. The real question is, are you civil and reasonable given that situation, or are you going to make this an all-out fight?

To the extent possible, I strongly encourage people to be civil. It's not always possible. There are plenty of very difficult situations. But if you are civil, you have different options. There are versions... on an extreme case, if you're civil, you don't have a lot of assets, you don't have kids or complicated custody issues to worry about, then you can actually do a lot of the divorce process yourself, and what that looks like is you and your spouse sit around the proverbial kitchen table; you work out what's going to happen; you can do it online or go to an attorney and just say, "Draft it up for me." It gets drafted from an attorney or a paralegal, you have your agreement, you move on, and that's all there is to the process, and a percentage of people do it that way.

There are collaborative divorce processes and mediation processes where you... a little bit different, but the short version is with an attorney, with a neutral party, you and your spouse keep it relatively simple. You put all your cards on the table. It could be one session, it could be multiple sessions, depending upon the technicalities of the process that you're going through, where you all work it out on a room... or these days, via Zoom.

Dr. Marie Murphy: In the Zoom room.

Shawn Leamon: Yeah, you can do a Zoom mediation with a neutral third party or an attorney, and be a collaborative divorce process or a mediation process, and work out all the issues, and then someone translates that and takes it and creates an agreement.

Now, the more complicated process if I were just keeping it... the traditional divorce process is actually the toughest, because in that process, it's adversarial by nature. So, one person is the person basically suing the other person, and we have a plaintiff and a respondent, and the paperwork looks very, very formal, and one person is basically suing the other, and you have to go through some very complicated, often times very nasty, emails with attorneys, with the discovery process, which is just gathering all the financial information, figuring out how much things are worth.

But every step of the way can be a fight, and so, if someone is asking for... I'll give an example that just came up yesterday. Someone has a basic house. I don't know, it's $400,000, let's just say, approximately; nice house, not extravagant, but they're fighting over the value of the house. One person gets an appraiser, the other person gets an appraiser. Both appraisers have to fight out the valuation, and we're now $7,000 in legal fees on the value of the house. Now, you multiply that by absolutely everything that could be an issue, and you can see why that process can become very expensive and very complicated.

Now, unfortunately, one, this is common, and two, there are some couples that just can't resolve their issues, in which case, that's just the nature the process has to go, but there is a larger percentage of people who may end up going a more adversarial process that don't have to or don't need to.

When it comes to options, I always say, hey, see if something like collaborative divorce works, and look for a collaborative divorce attorney if you're halfway in decent terms with your spouse. Look for someone who's a mediator. See if that may work with your spouse. Look for someone who may just help you negotiate a couple of small issues; sometimes you agree on 80%, but need to work it out on 20%, or sometimes just one thing.

If you're in a position where you can go through the divorce process like that, then you should, and if not, when all else fails, you kind of have to go the traditional route where both of you hire attorneys who aren't generally very pleasant... and good luck.

Dr. Marie Murphy: Yeah. In the book, you talk about going to court and why it's so important to avoid it if at all possible. What are some of the reasons why you might have to go to court, and what should you keep in mind if you do?

Shawn Leamon: Let's talk about why you don't want to go to court first.

Dr. Marie Murphy: Sure.

Shawn Leamon: In most people's minds, because at least I am a big fan of crime dramas and have watched probably many lifetimes of Law and Order episodes, you envision some grand person talking on your behalf, and then you get to advocate, and there's great speeches, and the lighting is awesome, and people are cutting away to you, and this and that. No, sadly, that's not what really happens.

Most judges in most parts of the country are overwhelmed. They have hundreds, if not thousands, of people they have to deal with on their docket. Some courts in some counties... and a lot of this is very county by county, not even state by state... some counties, your judge may have just done eight traffic tickets in the morning, and then by the time, in your 11:00 AM right before lunch spot, they're dealing with your family law issue for 45 minutes, then they're going to lunch; then, they're dealing with a business litigation dispute. It's not the way it feels like, and they don't know you. I'm not going to say they don't care.

Dr. Marie Murphy: They're just thinking about lunch!

Shawn Leamon: Yeah, but judges are just people like us. They have a very important responsibility, but they aren't going to necessarily be able to get into every little detail of a case in your life the way that you think they will. They have hundreds of other people to deal with, and like every profession in the world, there are great judges. There are bad judges. There are great judges who have bad days. There are judges who like men. There are judges who don't like men. There are judges who like a woman in a blue dress. There might be a female judge who doesn't like women who wear blue dresses. Who knows?

It's not as fair as people may think it as.

Dr. Marie Murphy: Neutral.

Shawn Leamon: Neutral, right, exactly, as you may think... but, all that said, sometimes you have to go to court if you can't resolve things on your own. One of the things that happens is that every state has their own divorce process. You get assigned a judge, and a judge may ask... and it depends on your local divorce process; it's another reason to make sure you work with a good attorney... but part of the divorce process is let's have a preliminary hearing or preliminary meeting on one of these two things or three things or whatever, where the judge might say... so you might show up with your attorney and present the issues, and the judge will say, okay, well, we're going to set a trial for four months from now, but you're expected to have mediation in advance, or blah blah blah blah blah, and we'll set some conditions to get there. He or she will say, well, I hope you don't actually show up in four months. You should get this resolved beforehand, but we have this court date as a backstop.

A judge may say, oh, we need to make a ruling on a temporary support issue, so if there is some child support of spousal support that needs to be paid pending the divorce finalization... and when I say pending the divorce finalization, that could be a couple of years in many cases... then that's why you might be going in front of a judge.

But the real goal is, if you can avoid it, avoid it. But it is necessary in some points, and you'll need to be prepared if that is just part of your process.

Dr. Marie Murphy: Yeah, sure.

Were there any other options for the divorce process that we didn't touch on that you wanted to discuss?

Shawn Leamon: Those are the main ones. Broadly speaking, you can negotiate yourself or with partners, or just fight it out every step of the way. There's different ways you can negotiate it, be it do it yourself, divorce, or mediation, or collaborative divorce, or in some places, even arbitration, or even just around the kitchen table, as I said. You can do those, or you just say, "Let's fight."

Dr. Marie Murphy: Sure. Yeah. You talk about something in the book that I think is so important, not only when it comes to divorce, but in terms of any challenging situation in life, and that is figuring out what your least bad option is, or your least bad options are. Can you say a little bit about what you mean by that and why it's so important?

Shawn Leamon: Yeah, look, there is... and we touched on this a little bit before... there is a reality, and in my version of this, which I like numbers, sometimes there's only so much money to be split. You may look back and say, oh, I wish we had more here, or I wish we saved more, or I wish we didn't take this really expensive vacation every year, or whatever your wishes may have been... or he should be paying me more. She should be paying me more, or the system isn't fair because of X, Y, and Z. So?

That doesn't get us anywhere. You can complain all you want. You can wish all you want, but if you have... and I'm just going to make up this number... if you have $100,000 to split, and $50,000 is going to go to one person and $50,000 is going to go to the other person, then that just is. You can't say, well, I wish we had $350,000 to split. I wish you did, too!

Dr. Marie Murphy: It's not hopeful at this point, people.

Shawn Leamon: Yeah, I wish you did, too, but the reality is this. You need to make sure... and one of the biggest things I have conversations about is just accept reality. There are sometimes only two or three options in this process. They might not be great options. They might not feel fair to you. They may not feel good to you, but if these are the only options, and this is how things are going to play themselves out, you're going to have to just make the best one given the circumstances.

Dr. Marie Murphy: Yeah, for sure. This is something that I talk with people about all the time, whether it's related to relationships or job stuff or other life stuff. There is so much freedom that comes from realizing that some things in life are non-negotiable, but no matter what, you get to choose how you respond to those non-negotiables.

It's weird, because we want... by we, I mean collectively... people tend to want external circumstances to change so that we can feel happier, but that's not how it works. It's just not the way it is. That's not the option. The option is to change our internal response to the things that exist out there.

Shawn Leamon: I think that's a very good point. The best conversations I have with people are those who have figured out, or at least have a very good understanding of their internal responses, and have worked through all of that.

When I talk about... one of my big things from a financial perspective is... I hate to put it so harshly, because it sounds harsher than it is... I don't care how you feel. I just want you to make the right business decision given the circumstances, and you should treat this like you're the CEO of your life, because you are. There are some numbers, and there is some money that has to go here or there, or not go here or there. I don't care if you like it or dislike it.

It is the reality, and so, you go through it, but when people have done that internal work, or are working on that and have made a significant progress, it makes this process a lot easier, because one of the biggest things that's extra hard about divorce and the financial intertwining is that you're living it. There's a lot of emotion that's attached to that retirement account. Something I hear from guys all the time, mostly, is, well, I've been working for 25 years for that retirement account; she can't touch it! I'm like, well, that's not how the rules work!

This is, of course, a very traditional example I'm presenting, but maybe if your wife in this ultra-traditional example sounds... if your wife was raising your three kids who are now great adults and you're super proud of, even though there isn't dollar signs attached to that contribution, that was the partnership that you had and that's equally... I mean, I don't know how you value that, but it's just as valuable even though it's not a retirement account.

So, you have to just accept and work through those things. I just had a great conversation with someone yesterday who has been working... she had just come from her therapist's office, actually, before we spoke, but she had such a better understanding of... she was laughing at how absurd some of the things that were going on were, and of course, it doesn't make it easy, but she had a much better approach because she's been working on that internal stuff every day and every week.

Dr. Marie Murphy: Yeah. We could have an hour-long conversation about each of the things you just mentioned. I think the sort of bigger, overarching point is there is so much to be learned from interrogating our beliefs about money and what we're entitled to, and what it means for us to let go of our money, or share our money, or ask for money sometimes. That is really big stuff in our society, and I would suggest, always an opportunity for immense personal transformation and growth. It may not be the growth that you thought you wanted in your life at this particular point, but when you take that stuff on, so much change is possible.

What I see is that the more you're willing to reckon with whatever difficulties are facing you in the present, the better chance you have of being able to create a future that you're really excited about.

Shawn Leamon: 100% agree.

Dr. Marie Murphy: Yeah.

All right, Shawn, as you know, this show is all about expanding the conversation around infidelity, so I would love it if you could tell us about a time when you have been unfaithful to someone... maybe yourself, maybe another person, or to something.

Dr. Marie Murphy: Yeah, always a tough question. It flashes back to a time... I don't know, six, seven years ago... for context, I grew up in a military family and still have a lot of family members in the military. My dad was, and many other people in my family are now active. I didn't go, and I've always felt bad about that.

A few years back, I was driving in the car. I've always kind of regretted not going and thinking about part of my destiny, but it took a long time to figure out, that just isn't my life path. It doesn't burden me the way it used to, because I assumed that I was, I don't know, lesser than a lot of people in my family for that reason, and I let go of that as a terms of a piece of my identity.

Do I still miss it some? Yeah, of course, but I realized that sometimes it just isn't... it wasn't me. It wasn't my path, and it took a long time, a long time, to come to that conclusion.

Dr. Marie Murphy: Yeah. Yeah. I love that. Sometimes the hardest thing to do is to allow ourselves to be who we are.

When you said... I think you said, I still miss it sometimes, what do you mean by that?

Shawn Leamon: It's hard to describe without being around me a lot, but there's an element of me that... I love a lot of parts of the military. Some of those are just being a proud American, but also some of those are I like the challenge aspect; that's why I like the endurance... you mentioned very briefly at the beginning the endurance athletes... I find it incredibly inspiring, the people who sacrifice everything, and not necessarily death all the time, but are willing to put in every ounce of energy for a cause, or that cause could be the person next to them; that cause could be the country; that cause could be their family. Those who give it all, or at least willing to sacrifice some discomfort in something greater than them... and so, any way I can get a small piece of that makes me feel... and it is always just going to be a small piece, unfortunately, in my case, but just tasting that is something that I try to replicate in my life as often as I can.

Dr. Marie Murphy: That's so cool. Yeah, that's something we could talk forever about, too, but I bet you engage in elements of that in your work in all kinds of ways, maybe some that you recognize and some that maybe you don't.

Shawn Leamon: Yeah, now, that is an interesting conversation that I have never thought about before, so yeah, that would be something to think about.

Dr. Marie Murphy: Yeah. Yeah. All right. Well, we'll save that for another time, I guess. Reluctantly, we'll put that on the table.

Shawn Leamon: Next time!

Dr. Marie Murphy: Shawn, remind everybody where they can go to learn more about you and your work.

Shawn Leamon: Sure. Everything is at DivorceAndYourMoney.com, or if you ever just search Divorce and Your Money, you'll see lots of resources. I have a free podcast, a book, and lots of other just information that you can find just by searching Divorce and Your Money.

Dr. Marie Murphy: Awesome. Thanks, everyone, for listening. If you enjoyed today's episode, we would sure appreciate it if you would go on over to iTunes and rate and review this show. Thanks so much for listening, and Shawn, thank you so much for being here today.

Shawn Leamon: Thank you for having me. I really enjoyed it.

Dr. Marie Murphy: Awesome! Bye, everybody!

Thanks for listening to Your Secret is Safe With me, with Dr. Marie Murphy. Make sure to click Subscribe to get updates on our latest episodes.

In this episode, we interview Monica Mazzei, a top family law attorney in California with almost 20 years of experience. She will give us the ins and outs of mediation - and how it can be a great tool to resolve even the most complex divorces. To reach Monica directly, here is her contact information:

Monica Mazzei

Sideman & Bancroft

415.392.1960

[email protected]

https://www.sideman.com/professionals/monica-mazzei/

San Francisco, CA

Find the full transcript of the episode below.

Shawn Leamon: In this episode, I get to interview Monica Mazzei. And she is one of the top family lawyers in California. She’s worked on dozens if not hundreds of really impressive cases with some super successful people in California. And in our episode, she is going to talk to us all about mediation, the ins and outs, how it works, how to make sure it’s a good fit for you, how to get the most out of it. And why mediation may be really useful for your situation and why it’s something that you should consider, particularly in a world in which many courts are still closed, or at least are extra slow in a pandemic world.

And mediation may be one of the only ways you can get your divorce resolved in a reasonable timeframe. And it’s a much faster process. It is a more private process and Monica is going to walk us through all of the details of that. And for you listeners in California as well, as an added bonus she may be a good fit for you. So just something to think about. Without further ado here’s my interview with Monica. So today on the show I have with me Monica Mazzei. An attorney and partner at Simon and Bancroft based in San Francisco. Monica, welcome to the show.

Monica Mazzei: Why thank you. Happy to be here.

Shawn Leamon: Why don’t you tell us a little bit about yourself, where you are, where you’re from, your legal background, before we get into the meat of today’s episode which is all about mediation.

Monica Mazzei: So my name is Monica Mazzei. I have been practicing family law exclusively for nearly 20 years. I started practicing family law in Beverly Hills. And for the last 15 years my practice has been in San Francisco and Silicon Valley. I handle the financial part of the divorce, but I don’t handle any child custody. So I have a pretty unusual practice in that way. And being in the Bay Area as you can imagine, I work with a lot of technology companies, high net worth clients, and really enjoy practicing family law.

Shawn Leamon: And I want to get into mediation in a moment, but is mediation the focus of your practice or have you done other things in the past? I just want to get a feel and set the audience up for a little bit of your legal background and expertise.

Monica Mazzei: So my practice over the last year has been transitioning from representing clients in a traditional way in the divorce, representing one party either in settlement conferences or in litigation. Now transitioning to serving as a mediator. So I work with both parties to help facilitate an agreement. Those parties usually have their own independent attorneys that they consult with. But I’m there as a neutral third party to tell them what the law is, identify the issues, brainstorm ideas, and help them work out an agreement outside the court system.

Shawn Leamon: So let’s talk about the mechanics of that. And I think it’s very useful to have had the background from the traditional perspective that now you get to work with both sides and come with creative solutions. Why don’t you tell us a little bit more of just what is mediation and how does it work? And it’s a topic that everyone knows about in concept, but a lot of people don’t really know the details of what is mediation like. You said you’re the neutral person, but you also mentioned something about people also have their own attorneys. So can you kind of set up the background on the basics of mediation for us?

Monica Mazzei: Sure. So traditional mediation is when two parties meet with the mediator, nowadays it’s all by Zoom. In the pre-COVID world it was in-person with just husband and wife and the mediator in the room. And the mediator doesn’t represent either person. The mediator’s job is to tell you what the law is, identify the issues and give you some ideas about how you could come to a compromise that will work for both people. That’s a traditional mediation. Another version of mediation is where the parties show up and they each have an attorney with them. And so it’s kind of a group effort, a group mediation. And that you see in cases where there might be more complicated issues or very high net worth estates. Might be more of a group mediation with the attorneys. But I would say the most common and the traditional way is just the parties and the mediator, the three people.

Shawn Leamon: What you see most of the time it sounds like so they show up for a session and you’re the neutral person. And then it’s the two people talking it out. Can you tell us just what a session is like? You said it’s by Zoom, but kind of paint the picture. So are there breakout rooms or is everyone on the same Zoom these days? Just give us the mechanics of that.

Monica Mazzei: Sure. So typically we’ll start out with everyone in the same Zoom room and talk about what the issues are to discuss that day, how the day is going to work. And then typically we will be in breakout rooms. So each person will have their own Zoom room and I will shuttle back and forth in between. Really depending on the couple, sometimes we convene throughout the day the three of us again. But a lot of people really like having their own space, their own Zoom rooms feel freer to say what they want to say or ask questions. So I find that I think the most productive way is for people to at least part of the day have some space in their own Zoom rooms. Sometimes a mediation will last from 9:00 AM to five, six, seven, 8:00 PM and we’re able to resolve everything in one day. In other cases it might take two or three mediation sessions that maybe don’t go quite as long to reach an agreement.

So really depends on what the issues are. Mediation takes two people that are at least willing to come to the table and have a discussion and a compromise. I think mediation has become very, very popular in family law over the last decade. But with COVID and the courts being enclosed I think I’m seeing a flood of new mediation cases. People realizing that the courts might not even be accessible and this might be the most efficient way to get their divorce resolved or their premarital agreement. I don’t always just mediate divorces but premarital agreements as well. And I think people are really recognizing the value in mediation. Not only the cost savings but the emotional toll that a long strung out litigated divorce could take. And are just becoming more conscious of how they’re handling the unwinding of the relationship in general.

Shawn Leamon: Yeah. Let’s talk about some of those last points. We don’t need to get into all the details of the cost and what that may look like, but can you compare why it may be less expensive than the traditional route?

Monica Mazzei: Well, in mediation you’re paying the mediators hourly rate one typically the mediator is an attorney. If going the non-mediation route, you’re each paying separate attorneys. You’re litigating which is expensive. It’s a very slow process because the courts are so backlogged. They are not very accessible. Even in pre-COVID days, you may have to wait months to get in front of a judge if you have an issue that you need heard. It’s just really not an efficient way to handle a divorce. And I think that many, many more people are going to be turning to mediation in the next couple of years.

Shawn Leamon: Well, let’s talk about the speed issue because that’s a very important one because we all know that divorces can drag on a year or seven sometimes depending upon the situation. Hopefully not that long, but it certainly does happen. If someone is in a situation and I know lots of people who are listening are in the preparation phase and they’re trying to figure out a lot of things, but one of them is how do I go about this process? And cost is always a consideration, time to get everything resolved is a consideration. But if someone’s just starting the process and they think they can go the mediation route with their spouse, how long does it take assuming they can work through their issues in a few sessions? Kind of start to finish what does that look like for someone and walk us all the way through?

Monica Mazzei: Sure. I mean I think generally if there’s not overly complicated financial issues, I think three to four months is a fair timeline in a mediation. You have to choose your mediator and that entails both people agreeing on the mediator to use. So as you can imagine if two people are divorcing, making a decision about what mediator to use could take a few tries. Both people have to have a consultation with the mediator together and make sure they’re both comfortable with that person and they both want to work with that person. And then it’s scheduling the mediation and there’s some paperwork also involved and getting the divorce process started.

But the great thing about mediation and now doing it online is it’s much easier to work around people’s schedules, the work schedules of the parties. I do many mediations that are after 5:00 PM because people have kids and Zoom school and jobs. So it’s a very flexible alternative. So I would say generally three to four months from start to finish from choosing the mediator, getting the paperwork in order and having a couple sessions and getting a settlement agreement.

Shawn Leamon: Versus a traditional agreement, which takes what do you see on average with your cases if you were just going to go the litigated route? A year, two years, how long does that go?

Monica Mazzei: I would say two years is a good average for my litigated cases. The longest case that I had was eight years. That went on eight years but yeah, I think the average is two years.

Shawn Leamon: Got it. No, I think that’s great. You brought up something that was interesting in your answer which was that the couple has to agree upon the mediator and choose a mediator that will work for them. It’s a big decision, how does someone choose a mediator? One is find a mediator, of course it’s hard to find a mediator. It’s a topic that we discuss a lot on the podcast. But how do they find one, how do they choose one? And if someone is… And kind of third part of that, if someone finds someone they like you, how do you convince your spouse to also show up to that person and take the appointment?

Monica Mazzei: Well, finding a mediator now we have all these resources online. There’s a great website called mediate.com that has a lot of family law mediators listed on it. It’s a great resource, there’s a lot of good family law mediators on that website. Word of mouth is also another good way. If you have a friend and they liked their mediator definitely check that person out. I think choosing at least two people to have a consult with or interview is a good idea so you have something to compare and contrast to. You both have to be really comfortable talking to this person, talking about intimate details of your marriage or finances.

So I always advise people interview two mediators. You want to make sure that the mediator that you choose has experience in the issues you need to address. So for example if someone has a really complicated custody issue, I’m probably not your person because I haven’t handled any custody issues in over a decade. But if you’ve got issues with stock options or private equity or just private investments, I have a lot of experience in how to divide those assets and value them.

So you want to make sure the mediator has experience with whatever your issues are. Maybe you own a family business together and has the mediator ever dealt with that before? You want to ask those questions of the mediator. You want someone that’s familiar with your issues. Because the great thing about mediation is when I’m mediating a case for example that involves a family-owned business, I’ve had to handle that issue in divorce cases so many times that I can give the parties a whole bunch of ideas about what other people did and how they resolved it. And it just kind of helps for people to hear what creative options are out there and what other people have done.

Shawn Leamon: It sounds like one of the questions to ask is have you dealt with situations like mine or do you deal a lot with situations like mine? Are there other characteristics to look out for in a mediator? One that may be simple which I don’t know the answer to is are all mediators former attorneys or attorneys active attorneys or judges or what other kinds of things should someone be looking out for as they make their mediator selection? And also are there any red flags that you may want to look out for as someone looks at different mediator options?

Monica Mazzei: So, in California you actually don’t have to be an attorney to be a mediator. So in family law you get a mixed bag of mediators. Most I would say are attorneys or were and others are more mental health professionals or therapists. I think it depends on what your issue is. If you have a lot of custody issues maybe having a mediator that has a background in child therapy or behavioral therapy is a good choice. If you’ve got some financial issues I think having an attorney that has experience in those issues is probably the way to go. Not all mediators are created equally. I think a red flag would be a mediator who doesn’t have any experience in family law that mediate personal injury cases and this is their first family law mediation. You might not want to be the guinea pig for that mediation. So someone that has handled family law mediations before.

Shawn Leamon: And to that point, I mean if you were to have a therapist help with the mediation or something like that, how in your experience do people actually write up the resolution to a mediation session? Because I imagine you’re going to come to an agreement at some point in the process, but then what happens?

Monica Mazzei: So if you have an attorney mediator like myself, the attorney mediator typically prepares the settlement agreement. So that’s what I do, once the parties have reached an agreement I’m the one that prepares the settlement agreement. I always advise the parties that they should each have an independent attorney review it before they sign it. And I would prefer that, but that’s up to the parties. So if it’s a non attorney mediator one of the parties is going to have to have an attorney prepare the settlement agreement.

Shawn Leamon: Yeah, you mentioned other attorneys involved and I want to shift gears and discuss that for a bit. Is so in your examples normally there’s of course the two people who are actively in the mediation session, the people getting divorced or negotiating a prenup or whatever the situation may be. But they may have their own attorneys as well. Can you describe how that interaction and interplay works between what now seems like five people I suppose in this example?

Monica Mazzei: Sure. So when we have a mediation where both parties have their attorneys actively involved in the mediation session, it looks pretty similar. So for example if we’re on Zoom, we start in one Zoom room altogether and typically talk about how the day is going to be broken up or what we’re there to discuss. And then each party will go to a separate breakout room with their attorney with them. And I shuttle back and forth between the rooms. Cases where an attorney… The parties might want their attorneys to be involved, sometimes if there is a big disparity in experience, if one person has been running a business or is very financially savvy and the other person is not, maybe that is a good place to have attorneys present. Because again, the mediator doesn’t represent the parties. So if there’s a big disparity that might be really helpful to have attorneys there. In family law cases sadly, there is more common than I would hope abuse issues do arise, domestic abuse issues.

That’s another case where perhaps it’s appropriate for the attorneys to be involved when there’s that dynamic going on, just to make sure that the victim, the abuse victim, is feeling properly represented and someone is there to make sure that they’re being advocated for. And then I think the third situation would be really complicated financial issues. Any divorce case involving a hedge fund, a venture capital fund, a private equity fund, those cases typically attorneys are going to be more involved because they’re very detailed financial issues that at least one of the parties might not be familiar with. Those cases typically the attorneys are going to be involved during the mediation and present for them.

Shawn Leamon: That’s a good segue. I know some attorneys who aren’t big fans of mediation sometimes and they’ll say, no, no, no, no, no, no, no, no, no. If you have complicated issues and you can’t deal with them in mediation, we got to subpoena this and fight that and do this order and that whatever. How do you handle complex issues in mediation? And is it a good forum? How does that work itself out? Because I know some people rightly or wrongly may think it’s not applicable or not feasible in a mediation session to come up with solutions for some of these things.

Monica Mazzei: It all depends who the mediator is. I think that mediation is a great way to resolve cases involving those types of businesses and those types of compensation. If everyone involved has the same experience level including the mediator, you can really cut through a lot of the education of a public sitting judge, for example who doesn’t know how hedge fund managers get paid and doesn’t know what carried interest is. If you have a mediator that you don’t have to educate that knows how everything works, you can hit the ground running and start negotiating a lot sooner than you would ever get in the court system. And there’s also accountants involved and in those cases, there’s a big team of people, but it is a great way to settle cases involving those businesses. If the mediator is financially savvy enough and has experience, it really is efficient and you can really come up with some creative out of the box solutions.

Shawn Leamon: And so it sounds like even though mediation can be faster and there’s a lot of benefits to it, it sounds like you can still bring in a lot of the traditional divorce resources that you would use perhaps in a litigated manner but it’s just not the same atmosphere in which you may have valuations, you may have different things you have to do with stock options or figuring out what’s going on with the hedge fund or private equity fund. And you may need to bring in some other financial professionals, it’s just the context. And the way that you end up at a resolution is just different and a lot more efficient and streamlined.

Monica Mazzei: Yes, more efficient, less adversarial. But I think there’s a misperception sometimes in the public that mediation is like everyone’s sitting around the table, holding hands, singing songs and it’s too touchy feely, how can you possibly resolve a complex case with a hedge fund that way? And it doesn’t really work that way. Mediation can definitely deal with high level complex issues. Just because it’s mediation doesn’t mean that we are throwing out all the rules and how things work and it’s just reaching an agreement. One, that works for everyone and two, is a lot more efficient.

Shawn Leamon: When coming up with an agreement a lot of times you’ll hear or someone will say well, the judge will say this and that’s the guiding principle for how people come up with a resolution. Is that the case in mediation? What I’m getting at is there’s the letter of the law, but the letter of the law isn’t always clear, but a lot of times people say, “Well, what would the judge say? What if we just took it out?” And that’s kind of their position. Or is there some flexibility in mediation? How does that dynamic play itself out?

Monica Mazzei: Well, the great thing about mediation is people can agree to anything that works for them. When you go to court and you go before a judge and in family law in California we don’t have juries and family law. So you have one judge that makes the decision. In my experience, both people leave the courtroom not happy with the decision. Both people, they have no say in shaping it. Sometimes you get a judge who woke up on the wrong side of the bed or who didn’t understand what the issues were and totally got it wrong. Mediation gives the parties an opportunity to have a say in the resolution. And they often will say well, what would happen if we went to court? And so I do give my opinion. Well, the law says this.

But I always like to follow it up with, but let me tell you what some other people have done in mediation with the same issue and give them some ideas to start thinking outside of the box and a way from maybe just what the law provides. The law is not flexible, it doesn’t conform to the differences in families and how a particular family works. And it’s very cookie cutter. And I don’t think that necessarily works in a divorce situation. In mediation you can really get creative. As long as we’re staying within the tax code and things like that, we really can come up with anything that works for that particular couple.

Shawn Leamon: And on the other side, what about privacy? I imagine that in a mediated session you don’t have to just… I mean you disclose things with your party as part of the process, but what kind of public information gets disclosed in mediation versus a traditional process?

Monica Mazzei: Everything in mediation is confidential. So unlike if you’re in court, you’re in a public forum. Sometimes there could be 30 to 40 people sitting in the courtroom, hearing all about where you live and how much money you have and your kids’ names. It’s a very public way to go through a divorce. In mediation, no one is there except for the two of you and your mediator and perhaps your attorneys and everything that you say in the mediation is confidential. And there is very little paperwork that has to be filed with the court if you’re in mediation. So the petition to start the process and we’re even able to submit a confidential settlement agreement to the court. So very, very limited paperwork in the court system. But I think more importantly you’re not in a public forum and you’re in a conference room or on Zoom with the mediator.

Shawn Leamon: And so we’ve gone through a lot of the basics of mediation and I want to get to a couple of concluding questions. The first is what happens if mediation doesn’t work, what happens then?

Monica Mazzei: Well, if mediation doesn’t work then the parties will have to each get an attorney if they don’t already have one and decide what their next step is. Are they going to try to just negotiate through the attorneys and not use the mediator at all? Or are they going to go the court route? Which to me is always a last resort. I think the cases that fall out of mediation are the cases that were just not good cases for mediation to begin with.

Shawn Leamon: And I think that’s a great transition to my last question or one of my last questions is someone’s thinking about mediation, I think it’s a very compelling and I believe a lot of people after hearing this will say this is a really compelling option. If someone is thinking about it, how would they know if they’re a good candidate for it? Why don’t you just kind of go over those key points to say like yeah if you’re in this situation here’s how you know that mediation may work for you or may not work for you, but can you kind of go through that?

Monica Mazzei: Mediation takes two people. You can’t force someone to participate in it. So that is going to be the big telltale sign. Is, are you both like-minded? Do both people want to go the mediation route and are they both going to be engaged in the process? If you feel like you’re dragging someone to mediation kicking and screaming, that’s probably not a good case for mediation. Both people have to be willing to say, “This is horrible, going through a divorce is horrible, but we both don’t want to go to court. So let’s pick a mediator and use this alternative. I still don’t like you, but I’m willing to go to mediation.” So fundamentally that’s not going to be the situation for everyone. If you’re met with resistance, then you’re not going to have an option. And in my experience trying to force someone or cajole them into mediation you’re just setting yourself up for failure and probably a waste of time.

Shawn Leamon: So mediation doesn’t have to be easy, but both people are going to need to agree to it?

Monica Mazzei: Yes.

Shawn Leamon: Well, Monica if people want to reach you, particularly the California listeners, what’s the best way for them to do that.

Monica Mazzei: They can email me at [email protected]. 

Shawn Leamon: Excellent. And do you work all over the state in the Zoom world?

Monica Mazzei: Mainly just California, I’m only licensed to practice in California. I can handle mediations outside of California, but I wouldn’t be able to prepare the settlement agreement.

Visit us at divorceandyourmoney.com for the #1 divorce resources in the USA and get personalized help.

In this episode, I want to discuss an important term called co-mingling. That is the process in which you can inadvertently make separate property, marital property. Co-mingling is a very important term when it comes to divorce, and I'm going to use an example of an inheritance because it's a very common example.

Let's just say you receive an inheritance from your mom, I'm just going to make it up, and let's just say you received $100,000 from your mom because unfortunately, she passed away. Well, if you receive that money, the perfect circumstance or the ideal circumstance is you deposit that money into a separate bank account and you never move it to your joint bank account and you only track and... In a perfect world, you don't even spend that money. You save it for a rainy day. But let's just say you have to use some of it for a down payment on a house, and so you use that money for a down payment on a house. You and your spouse now have both of your names on the house, but that down payment came from that inheritance. That's a common example that I hear almost every week. Or even you needed the funds for daily living expenses and you started mixing those funds in and you move that money to a joint account. Well, when it comes to the time of divorce, you have to say, "Well, hey, is that money, is it separate property or is it marital property?" And it starts to get really complicated because it depends.

Now, if you got that money first, and let's just say you used it for life expenses, and you used that money and you put it in a joint account from that inheritance money into a joint account. Well, those funds may have become marital assets, inadvertently, because of that. Or if you used those funds for a down payment on a jointly owned house, does it immediately become marital property? Now it gets a little bit more complicated. This subject is very complicated and it depends on your individual circumstances, but I want to give you the highlights as to what you're going to be thinking about if this is an issue in your divorce.

Conversely, you could be on the other side of this situation too, where your spouse got an inheritance, and sometimes it's a pretty substantial amount, and you're trying to figure out, "Well, hey, we used some of that inheritance for these one, two and three things. Does he or she get credit for that money? Does that money come back? Is that joint property? What's the deal? What do we get to do with that?" So that is where this process becomes very important to understand from both sides of the spectrum.

So the first part, and the term that I'm going to introduce to start, is called tracing. So the first word is co-mingling, and that's the process of making a separate property, marital, broadly speaking. Now, tracing is a very important term, and that is figuring out where the money came from. Simple as that. So if you had, let's just say, a gift from a parent, and let's just say that gift came or that inheritance came eight years ago, and then five years ago you used that money to buy a house. And then now fast forward five years, you're facing a divorce situation. Well, you want to keep that inheritance separate, is my guess, and you don't want to split the funds that your parent gave you. So how do you figure out and prove, basically, that that inheritance is separate property? And conversely, if you're the one who's contesting this situation, you're going to have to make your spouse illustrate where all of that money came from and have the records for it.

So that's where tracing comes into play. Very simply, it's just figuring out where the money came from and going through that process of, "Hey, eight years ago, those funds were deposited into this account. And then five years ago, it was wired to this company for the down payment on the house." And you need to go through that process and have all the steps involved, and it's not an easy one oftentimes. So here's where one of the most important things you'll hear me always talk about is having good documentation. That's the problem and that's really the biggest challenge with co-mingling is having the documentation.

If you've been married for a long time, and I speak to people who've been married 20, 30, 40 years oftentimes, and you may not have clean records for where every dollar went. It's something that's very important to think about because state rules can vary on the subject in terms of what you should do in those situations. And one of the things you're going to really need to focus on is gathering documentation. Because sometimes in a state, the burden is, and really you need to talk to your attorney about this point because there are a lot of nuances on the burden, but some states will say, "Hey, unless it can be proved it's separate property, it's automatically marital property." Other states have a little less restrictive or a little bit more flexible burden on that very point.

So you really need to understand what's happening, but the clean way to figure things out is to have records. So to get records, you can... The first thing is that even if an account is old, you might not be able to log into your Bank of America account or Chase account and see records more than two or three years old. But if you walk into your local Chase branch, or you set up an appointment, you may be able to get records from the time you've had the account. I've been in banks with clients before where you go and you figure out, "All right, well, here's the time that we had the account" and they'll go back and they can go to the bank and get 10 years of records. It might take a couple of hours, but it is a very doable thing to do when you go into the bank.

Now, it can be tough and you still may not have all of the records, but also look for old correspondence. If you've had the same email account, or if you have any mail, or if you keep a safe or a file cabinet with important documentation. Or sometimes if it's related to an inheritance, you may have or you may need to contact the old attorney who handled the paperwork if an attorney handled it. Or your sibling, sometimes maybe you don't have it, but if you have a brother or sister or something, you might be able to contact them and figure out what kind of shreds of evidence sometimes it is, particularly, we're talking about something 10 years or eight years in the past, you may have to keep things clean. Now, sometimes it's not a big issue when it comes to documentation and you have everything there. But if you don't, those are some tips I would suggest for you.

Now, let's just say not all things are clean and smooth, and let's just say this is going to become a big issue between you and your spouse as part of the divorce process. What do you do? That is you're going to have to bring in some experts. There are forensic accountants and CPAs who do this work and can help figure out, "All right, what part is separate? What part is marital?" And sometimes they may even come up with estimates. But if you get a good accountant, they will look at what of information that you have or that your spouse has, and they will say, "Okay, well, I can see 70% of the picture" and they'll say, "Okay, well, from my best judgment, I think this amount of money is separate property and this amount of money is marital property." They can sometimes estimate or even trace with imperfect information where funds came and went.

So if you have a lot of money at stake, and sometimes it is, if you're dealing with hundreds of thousands, if not millions of dollars that you're trying to figure out, "Hey, what is separate property? Hey, what is marital property?" Then you should strongly consider getting an accountant or a forensic accountant to help you.

Now in a perfect world, and I always say this about hiring experts who do valuation or forensic accounting, et cetera, is in a perfect world, and we're talking about divorce so almost nothing is perfect, you would get a neutral person to look at all of the available documentation that you and your spouse agree upon. And will have that person analyze everything, prepare a report, and those are the numbers that you use to determine separate or marital property. Now, that's not always the case. Certainly, I see all the time where one person is hired by you, one person is hired by your spouse, and they come up with very different valuations of what is separate property and what is marital property from the co-mingling and the tracing that they do. And you have to basically fight it out, unfortunately, or come up with a middle ground.

So something to think about, but as I said in the previous episode is really to the extent that you can keep things separate and avoid making things separate, or making separate property marital, you should. Now, not all the time are you walking around your life and thinking that I'm going to get divorced tomorrow and therefore I need to have done these things eight years in advance. I understand that life doesn't work that way and so you shouldn't necessarily feel bad because you've made the wrong decision, but you do need to... Or you didn't have the records, or you didn't keep things as cleanly as you would like. But even despite that is you need to get on top of and start collecting and getting the information on all the records that you don't have and start planning for the future and putting yourself... I always say this is even in an imperfect situation and imperfect world, you need to start putting yourself in a very good or the best situation you can for the future to ensure, or at least to help ensure, that things are going the way that they should through the divorce process.

And if you gather up as much documentation as you can, you gather up some of the records, you might not be able to get 100% of the money back or prove 100% is one way or the other, but hey, if you get 80% of the way there or 70% of the way there, you are still in a much better position than before.

So the important term for this episode is co-mingling. And if you are thinking about your individual circumstance, this is a really complicated term, both legally and involving individual circumstances, and involving your state's laws, but I would type in co-mingling in your state and I would look at some attorney websites. I would contact your attorney and figure out, "Hey, what do I need to be thinking about both good or bad when it comes to co-mingling in my situation?" Because it can mean the difference in many thousands, hundreds of thousands, or in some cases, millions of dollars that go from one person to another.

Visit us at divorceandyourmoney.com for the #1 divorce resources in the USA and get personalized help.

It's been a little while since I have done an episode and it's been a very busy couple of months, so apologies about that. But I want to discuss a topic that's been coming up quite a bit in the coaching calls.

And that is how you handle inheritances and gifts during a divorce. It's a tricky question. And it's an important question because oftentimes your parents, or someone, will leave you a substantial sum and you want to protect that during the divorce process. Sometimes that inheritance money comes at a poorly time to time where you can't control it. Someone passes away, unfortunately, and you receive some money maybe right before a divorce or during the divorce process. And you're trying to figure out, well, what should you do?

I just spoke with someone the other day who had filed for divorce and then, unfortunately, a parent passed away, eight months into the divorce process And they were wondering, "Well, how do we handle this new inheritance that arose, and what to do about that?" And so in this episode, I want to give you some tips when it comes to handling gifts or inheritances and how to protect that property. And really, the main thing is how do you prevent it from becoming a community property, which is the property that is subject to, or that you're going to end up having to split as part of the divorce process.

So let's go through a few quick tips.

The first thing is if you receive an inheritance, or you receive a gift from someone, keep that stuff in your name only. Meaning, if you get some money, let's just say a hundred thousand dollars, because I'm going to use that as an easy example. If the parent passes away and gives you a hundred thousand dollars, don't deposit that into a joint bank account. Set up a separate bank account that's in your name only. And we're going to call it your inherited funds account. And so put the money in that bank account separately so that it doesn't get commingled with the other assets. And that could get complicated because not always is an inheritance a gift. Sometimes it may be a home or a car or any other type of property. Whatever it is, make sure to title it in your name only.

The second thing is don't let your spouse make any contributions to that gift or that inheritance. And the house is the easiest way to illustrate that. If you inherit a house and let's just say it's been run down for a little and it needs some repairs to get it up to speed. Well, one of the things that you should do is don't let your spouse contribute financially to those repairs because the value increase of that house, or even the whole house itself, depending upon where you are, could now come into question as part of the divorce process. And sometimes this may be a house that you maybe just made renovations or adjustments on a few years ago, and now the divorce process is happening. And now you're wondering, "Well, is any part of that house marital property, because my spouse helped renovate the master bathroom and bedroom in there?" And so if that's your situation, be very careful and think through what you're going to do with that inherited property. And if you can keep your spouse from making contributions to it, financial or labor even, then you should do so.

The third thing is to consider transferring that inheritance or gift to a trust. Now, oftentimes a parent who was savvy in estate planning, or at least inheritance is most commonly from parents, which is why I use that example, are very savvy in their estate planning. And so oftentimes as part of their estate is they will give you that property, be it cash or the home or whatever, jewelry or whatever it may be, and they might require it to be put in a trust as part of the process. But if that wasn't the case for you, I would consider setting up a trust.

Now there are lots of complications and nuances to having a trust set up for you. But what I would do is if you have an inheritance coming, or you recently got one, or you're thinking about it, I would go and look for an attorney called an estate planning attorney or a trust attorney. And they're kind of one and the same and they can illustrate options for you to set up a trust. Now, usually, there are some fees involved, of course, we're talking about legal work, but it can be worth a little bit of trust set up in the short term to protect you in the long-term.

And then the last thing I would strongly suggest is to keep really good records about where the inheritance came from, how much money was in there, where the funds went, et cetera, et cetera. One of the most common things that I deal with and see people make a mistake with is not keeping track of the money and keeping track of the details of an inheritance. And so what can happen is, let's just say you got an inheritance seven years ago and you knew it was approximately $123,000 but you don't remember the exact math that was there. Well, one of the things that you can do, error the exact amount that was in there because seven years have passed and you want to know. Well, if you don't know what that amount was and your spouse is going to contest it in terms of how much was actually in that inheritance, you could be setting yourself up for a world of potential hurt in that you may end up losing part of your inheritance in the divorce process since you didn't keep accurate records.

And so, one of the things that is most important to do is make sure that you keep track of the paperwork. Keep track of any emails. Keep track of any bank statements. Keep track of any lawyer's correspondence or documentation to ensure that the information that you have from the inheritance is kept and kept track of over time and kept cleanly. Because one of the things that can happen is, let's just say, hypothetically, you've received an inheritance of that $123,000, and the next year you purchased the house with your spouse and use those funds as a down payment. That's something that's very common. And then three or four or five years or 10 years, whatever the amount is, goes by and now you're facing divorce. And you're like, "Well, I contributed $123,000 to that down payment of the house from this inherited gift."

Well, the good news is that even though you may not have followed my initial steps or initial tips, my tips one, two, and three, that you still may be able to get credit for that money as part of the divorce process and consider it still separate property if you have accurate records. But you need to make sure that you have very accurate records of where every dollar came from and where that inheritance money went. On the other hand, if you didn't keep accurate records, you may lose those funds and it may become a costly issue. And it's something that you want to be very careful about. So it's one of those things where you need to make sure that you find every piece of documentation that you have related to that.

Now I've been talking mostly in the context of inheritances because that's the most common, but oftentimes I also see a parent give a gift to you and or your spouse. And what can happen is some money flows in, it's usually pretty informal, gifts around $14,000 or so are not taxed. But sometimes they're bigger gifts. And you forget, because of the size of the gift, to go through all of the steps and document everything. You may have just had a phone call with your mom or dad and your mom or dad just said, "Oh, I'm writing you a check for, here's a $10,000 check for some spending money." And if you're fortunate enough to have parents who are in that position and then you're like, "Oh great. This is a good check." And you use it for something important, but you want those funds back as part of the divorce process because you feel it's appropriate given the situation.

Well, one of the things you should make sure that you do is you need to have a list of documentation from your parents. Your parents, your mom or dad should say, "Hey, I wrote you this check for $10,000." You should have some emails from the time of the check. You should have other correspondence from that time. And you should indicate that all of that stuff happened and happened smoothly because that way you can prove where those funds came from. But just because it's casual or just because you may not be thinking about it at the time and divorce may not have even been on your radar at the time of the gift, which is okay, but you need to make sure that whenever money is coming in from a source, particularly a family member, that those transactions are documented and you gather that documentation.

So the four most important tips for protecting your inheritance or gifts in divorce. And I'll just go through them quickly. One is to keep inheritances or gifts in your name only. The second is don't let your spouse make any contributions to that account or that property to ensure that it stays separate. The third is to consider contacting an estate planner and transferring that inheritance or that gift to a trust. And fourth is to keep really good records as to where that inheritance or gift came from.