Break up without breaking the bank

Divorce has a lot of costs. Here's how to make it through without losing it all
May 21, 2010 | By: Michelle Morra-Carlisle

Divorces are like particularly icy snowflakes – no two are exactly alike. The outcome varies widely depending on the couple’s monetary and other assets, whether or not children are involved, and the degree of relationship breakdown.

If divorce is in your present or future, remember this: how rationally you behave, and how willing you and your partner are to negotiate, will make a drastic difference in your financial future.

Here are a few suggestions in the event that rapture turns to rupture:

Get a pre-nup. Usually called a “marriage contract” in Canada, this little business transaction may seem like a mood spoiler for a happily engaged couple, but look at it as a gesture of good faith. Deciding ahead of time the terms of a potential divorce, in writing and with a lawyer, makes things much easier than addressing these details only in the thick of an emotional split.

If you don’t have a marriage contract and are facing a pending divorce, though, read on…

If at all possible, negotiate. You will both need a lawyer. But the more you can agree upon, the less of your money will flow needlessly down the legal system’s drain.

“Both parties can save a lot of money if they get along,” says Debbie Hartzman, a certified divorce financial analyst and author of the handbook, Divorce is not easy but it can be fair. Her job is to help people navigate the legal system and understand their settlement options.

By mediating instead of litigating (going to court), you problem-solve and arrive at an agreement, sometimes with the help of a mediator. The non-litigious approach is confidential and aims to make the best of a bad situation.

Granted, not all divorces are amicable. Litigation could be exponentially more expensive but, depending on each party’s assets, protect them financially in the long run. Either way, make sure to seek legal and financial advice as early in the process as possible.

Keep your wits about you. Divorce is like a business transaction, so be professional. This is no time to act out on the hostile fantasies each party might have about burning the other’s belongings or stalking their new mate. Anything you do from this point could end up documented in a judge’s file.

Weigh your assets wisely. One common pitfall Hartzman sees is that people focus on keeping one asset instead of another, potentially more important one. Here’s an example of something to discuss with your financial advisor:

“We’ll see people negotiate because they want to keep the matrimonial home and let a pension go,” Hartzman says, “and that could be the absolute wrong thing to do.”

Even in particularly contentious divorces, there are ways to avoid unmanageable legal costs. Hartzman has seen cases where, for example, the husband denied having much of value, but the wife insisted he owned businesses worth a lot of money.

“I might say, ‘Let’s deal with the assets we know about first and see how much value is in those,” she says. “Then, if we feel like spending $10,000 to look into those other assets, we can explore that.”

Keep your expectations in check. Your lifestyle will change. The trick is to make that change as smooth as reasonably possible for the sake of your financial, physical and emotional health. Be flexible. You might have to consider options other than what you may have imagined.

Get the right kind of lawyer. Hartzman has seen people go through five different lawyers before (mega-funds later) arriving at the right one. She recommends interviewing a few prospects to find out their area of expertise. Some lawyers are happy to work in alternative dispute resolutions (a way of setting aside your differences to come to an agreement) and others are litigators (the better choice if the relationship has really broken down).