Divorce and Finance Blog: Divorce Financial Mistakes
It is very important that you get off to a good start in your divorce. A common mistake is for the parties to begin negotiations too early, without having a good understanding of the underlying financial parameters or the long-term consequences of alternative settlement scenarios. We have seen this happen too often in both mediated and litigated cases, and this can also easily happen in pro se cases (cases that are settled directly by the parties, without the involvement of professionals).
An inescapable truth is that the cost of maintaining two households after divorce is greater than the pre-divorce cost of maintaining one. It is also true that, unless there is some type of fraud or coercion, it will be costly, difficult and often impossible to get the courts to intervene and fix unworkable or unfair settlement agreements. Another problem is that people going through divorce often lack financial expertise or the weight of the divorce has otherwise clouded their ability to think clearly. As a result, people often make poor or inappropriate decisions, with potentially devastating consequences. For example, they may not have a clear understanding of their pre-divorce income and expenses, or they may not have given their post-divorce cash flow much thought, especially as it might differ in the context of alternative settlement scenarios. As a result, they might agree to take on a large amount of marital debt in exchange for an asset they cannot really afford to own.
Why might someone be inclined to begin negotiations early in the process? Sometimes people agree to do so for emotional reasons alone, for example because they feel guilty or because they mistakenly think cooperativity might help mend their broken relationship or encourage reciprocity by their spouse. Sometimes they do not have a realistic understanding of the importance of the negotiation process and short circuit it in an attempt to save money. In contrast, a spouse might fear that discovery might reveal information that could be disadvantageous or damaging in negotiations and might even put pressure on the other party to settle.
In “Red Zones in Divorce,” we discuss critical times in the divorce process. We have seen too many examples of problems caused by bad decision-making due to premature negotiations. As divorce number crunchers, we recommend that negotiations not begin before there has been sufficient financial discovery. Although there is a cost to this, the costs associated with poor decision-making can be much more severe.