There is a distinction between irreconcilable and reconcilable differences when it comes to separation and divorce. The focus of this article is on the reconcilable ones. When the relationship changes to a point where there will be a separation and divorce, there are certain issues that need to be addressed so that both parties can financially disentangle and move on with their lives. Emotional disentanglement takes time. When there are children, emotions can be purposefully directed to a cooperative parenting plan so that the children can benefit from the qualities that each parent brings to the family. For more on co-parenting agreements, please see my article entitled: Co-parenting, Where do I start?
Negotiating the Finances: The basis of any negotiation on finances should be information on all assets and debt. The negotiation should not begin until the information needed to make decisions is exchanged and the nature of the assets and debt is understood. While this takes time, it facilitates a productive discussion. In the mediation and collaborative law processes, the negotiation is not a zero sum game. Rather, the goal is to make sure that any agreement is reasonable and practical for each member of the family. There are various tools for compiling information on finances. This information will be the foundation for the negotiations.
Compiling Information: In most cases, a statement of net worth is used to compile information on finances. This form includes the following information: basic family data, such as the date of the marriage, names and birthdates of any children, monthly expenses, income, assets and debt. The information on assets includes values, titleholder, date of acquisition and other relevant information. To see the statement of net worth currently used by the New York State court system click here. In some cases, the parties use their own form to compile information. The goal is to make sure all assets and debt is understood and addressed. Supporting documentation such as deeds, trust documents, retirement statements, summary plan descriptions and award letters can be used to confirm and understand the information necessary for an agreement.
Separate vs. Marital Property: Under New York State law, separate property is generally defined as property acquired before marriage and marital property is defined as property acquired by one or both of the parties during the marriage regardless of the name in which the property is held unless there is a prenuptial agreement that provides otherwise. In compiling information on assets, it is important to understand this distinction as it can impact the distribution of the property. The burden is on the party claiming separate property to provide documentation to support the claim.
Cash Flow/Support: The information on income and expenses will facilitate a productive conversation on current cash flow and the needs of each party and the children moving forward. Many times, this discussion serves as a reality check on what an individual needs and what an individual would like to have moving forward. Once the parties review money coming in and going out, they prioritize what is most important to each of them and look at cash flow/support options.
Health Insurance: A review of the current health insurance coverage should be made so that both parties are clear on the cost of coverage, including the premiums, yearly deductible amount and unreimbursed expenses. The health needs of each member of the family should be reviewed as well. Upon the entry of a divorce, a spouse may or may not continue to be eligible depending on the terms of the plan. A cost benefit analysis is recommended in making the decision whether to continue coverage under a COBRA option or other options that are available.
Life Insurance: The life insurance that is in place should be reviewed, including the terms related to the death benefit, the beneficiary (ies) and whether the policy is term or whole life. The cash value of whole life policies should be confirmed.
There are many aspects to consider in the financial disentanglement of a relationship. Focusing on the facts helps to keep the discussion constructive so that the newly constructed family moves on with a reasonable agreement as a foundation.