Podcast: Spinning Spousal Maintenance Issues in Your Favor
Disclaimer: The materials and content within this podcast are intended as general information only and are not to be considered a substitute for professional legal advice or a consultation with a lawyer.
1. The Family Law Tip of The Week (:54)
A lot of times ex-spouses and ex-partners can get very friendly with one another (and become BFFs) once their case is over. Once in a while, they get so friendly, they decide nobody needs to be paying anybody child support, so they enter into an informal agreement for no child support. This is all great and good until there comes a day when there is a disagreement between the two of them. Suddenly, the party who is entitled to child support decides s/he needs it AND wants reimbursement for back child support.
This is a problem.
What it could mean is that one of the parties will end up owing the other thousands of dollars in back support; as long as the court order regarding child support has never been modified by the parties and approved by the judge, the old order is in effect. If no child support is being paid, despite any informal agreements, arrears are accumulating. The person who is obligated to pay could potentially be found in contempt of court for failing to abide by a court order.
Lesson: If you are going to make modifications to any agreements that were previously approved by a judge, make sure to put those changes into writing and have the court approve them.
2. Nancy Hetrick, Divorce Financial Strategies, LLC (2:03)
What is a Certified Divorce Financial Analyst (CDFA)?
Nancy is a Certified Divorce Financial Analyst (CDFA). That is a national certification that has been around for 12 years. She is specialized in issues surrounding divorce (and knowledgable on matters from taxes to the valuation of property to pensions). One of her jobs as a CDFA is to make sure couples avoid making expensive mistakes in the middle of a divorce process.
(2:47) A CDFA is a certification that exists nationwide, not just in Arizona. It is a standardized training. The program is rigorous. Additionally, CDFAs have to complete 15 hours of continuing education each year.
(3:31) Nancy is not trained specifically in the laws of Arizona. She is, however, trained in the specifics of community property states vs. non-community property states. CDFAs are given the resources to perform research and become knowledgable on their individual states. Because of technology, it is easy to get information on other states, and for this reason, Nancy does work across state lines.
(4:43) To become a CDFA, you must have 3 years of experience either as a financial planner or as a CPA. However, the reality is that neither of those people is trained in and specializes in the issues surrounding divorce. CDFAs are very unique to the divorce situation. The CDFA certification really takes all the things a CPA does (around taxes) and all of your financial issues, then marries them around a person who is educated about how all of those things are going to impact your life during and after divorce.
The Reasons Courts Are Changing Their View About Spousal Maintenance
(6:24) A common issue during divorce is spousal support/spousal maintenance/alimony. Nancy can help people answer the question “how am I going to take care of myself after this is over?” This question is usually the number one concern for the person who is going to be receiving maintenance and for the person who is going to be paying maintenance.
(7:00) Nancy can represent either the person receiving maintenance or the person paying maintenance. Most often, Nancy sees people thinking they are going to get lots of spousal maintenance so they will be just fine. It doesn’t always work that way. There are huge differences from state to state in terms of how much spousal maintenance is awarded.
(8:12) Nancy thinks this is due to a change in our culture. When no-fault divorce was legalized, it opened up the divorce floodgates. Prior to that time, people thought of marriage as a lifetime contract. If you were going to get a divorce, you breached the contract. The courts’ perceptions were that if you entered into the lifetime contract with the expectation that you would be supporting someone for life, you would have to keep supporting that person after divorce.
(9:01) Now, with no fault divorce, our whole cultural perceptions have changed. We are now saying it is a lifetime contract, but it is only a contract as long as you both agree to remain in the marriage. So, if people are getting divorces, even after being married 20 years, the courts are starting to change the way they view things. Judges are starting to say that everyone is obligated to support themselves as quickly as possible. Now, courts are awarding more rehabilitative maintenance.
(10:00) This notion of rehabilitative maintenance is sometimes problematic for “older” people who have been married for 25-30 years (keeping in mind that there are special rules in Arizona that apply to some of these people). The situation is scary for women who have been out of the work force for 25 years.
(10:33) This is why parties should try and find a way to resolve things out of court in an equitable way.
Step One in Your Spousal Maintenance Case – A Budget
(10:46) The first thing (that couples who are going through a divorce) have to do is a budget (indvidually). A lot of times people do a budget of their current life’s circumstances. That doesn’t work. They should be doing a projected budget for life after divorce.
(11:27) The cost of life after divorce can be very difficult to project. Additionally, both sides of of the couple have to realize that what used to support one household now has to support two households. That means both of them are going to experience a drop in their standard of living.
(12:20) A great place to start in creating a budget is to Google “free online budget tools.” Also, start tracking your spending. There is an online free money management program (mint.com). This tool allows you to categorize your spending for a month (debit card only). For every transaction, you assign it a budget category. At the end of the month, the program helps you figure out what you are spending your money on.
(13:35) With respect to post-divorce expenses, Wendy asks people to research. They should get quotes as far as health insurance, a home or apartment rental, etc. Depending on the costs of these things, the amount of spousal maintenance eventually awarded could be impacted.
Secrets That Affect Spousal Maintenance Awards
(15:00) Almost always, people don’t calculate their taxes correctly in their post-divorce projections. People are usually reporting taxes from current pay stubs. The problem is that these taxes are based on a person being married and possibly having dependents. This is all going to change after the divorce. Nancy can help take a look at this information to help someone recalculate what the taxes are going to look like post-divorce.
(15:43) Additionally, a lot of highly paid executives can report their earnings and tax withholding (on the Affidavit of Financial Information) based upon a pay stub for the first half of a year. However, after a person earns $105,000 in a year, Social Security withholding stops. What this means is that if someone is only looking at a check stub for the first part of the year but doesn’t realize that Social Security withholding has stopped, the executive is probably underreporting income for the rest of the year.
Documents to Collect to Support Your Alimony Case
(17:24) When a person is getting ready to go through a divorce, s/he should start collecting utility bills, grocery receipts, clothing receipts, and documentation related to expenses for children. One of the really important factors that is not AUTOMATICALLY included in the child support calculator (for Arizona) is if you have children in special activities that are very expensive. These items need to be looked at carefully if they are above and beyond typical child support coverage. Under Arizona laws, these things might be considered “extraordinary expenses.”
(18:53) With respect to income, a person should be collecting tax returns, W-2s, and pay stubs. There are good reasons to do this. For example, recently, Nancy had a case in which she was provided with these documents. She asked the attorney for the “Executive Compensation Account” documents. The attorney was confused, but then Nancy pointed out that right on the W-2, Box 12, Code V means there is an “Executive Compensation Account.” In that case, there was a $60,000 stock option and stock account that had not been disclosed. Nancy helped find this asset, and that added another $60,000 to the pot for the parties to split.
Income and Expense Information and Future Projections
(20:49) Once Nancy has income and expense information, her next step is to go through the budgets of both parties. Almost universally, if you take the total income that two people make and then you take the total expenses they both report, the couple will report 30% more in expenses than they have money to cover. This math obviously doesn’t add up.
(21:27) At that point, Nancy then goes through and helps the parties see where expenses might be overstated. She helps them get the budgets to a more realistic place. Nancy will then put together a projected budget that goes out for 10, 20 or 30 years (cash flow and total net worth for both parties). In these reports, you can see the future financial picture for each party (that may or may not be fair).
(22:33) Nine times out of ten, if Nancy can show the party who does not want to pay maintenance that 15 years from now, they are still going to have a net worth, they are still going to be on track for retirement, that person feels a little better about paying spousal maintenance. If Nancy can show that person in writing that BOTH parties are going to be OK, then couples are much quicker to reach settlement agreements.
(23:21) The root of a lot of settlement disagreements is fear and not knowing where to look to get answers. A lot of people are afraid of their future, but they are having a hard time finding someone to show them what the financial picture will look like.
Arizona Spousal Maintenance Awards Are Unpredictable
(23:59) In Arizona, two of the biggest spousal maintenance considerations are whether a person’s needs are being met AND how reasonable those needs are. The definition of “reasonable needs” can vary depending on a lot of factors. A couple in Paradise Valley could be used to living off $50,000 per month when another couple in another part of the city is used to living off of $60,000 or $70,000 per year (combined gross income). Different levels of “reasonable needs,” right?
(24:54) In the state of Arizona, the maintenance laws are extremely gray. They are not black and white. There is no calculator or guidelines for spousal maintenance. The reality is that if you took the exact same case in front of 3 different judges, you would get 3 different decisions.
(26:09) Nancy’s goal for couples is to have both parties feel like they won. That IS possible. The main reason it doesn’t happen more often is because of fear, misunderstanding and lack of information.
(26:51) Nancy is also trained as a certified mediator. Her favorite way to work is as a financial neutral for a couple who really wants to do the right thing, but also doesn’t want to make mistakes.
(27:22) A big mistake can be very expensive. “Not all assets are created equal.” Even though on paper it might be a 50/50 split, one person’s 50% might be worth a lot less than the other person’s 50% once you factor in taxes.
(28:07) If two people aren’t able to work things out, Nancy does expert witness work to lay out for the judge what the income discrepancies are, what the financial needs are, etc.
(30:00) The top things Nancy can help with: Clarity on what the finances will look like after divorce, and assurance that you will not have surprises down the road. You only have one chance to get it right. It is Nancy’s mission to help people get it right the first time.
(30:50) Find Nancy at divorcefinancialstrategiesllc.com or e-mail Nancy at Nancy@DivorceFinancialStrategiesLLC.
3. Thoughts From the Life Coach (31:12)
Are you ready to take “The Spin Challenge?” The challenge is to spin all negative experiences regarding perceived personal attacks to the positive side of things. It sounds easier than it really is. But still, I encourage you to give it a try for 2 consistent weeks. After 2 weeks, you will notice a distinct change in your emotions and in your physical appearance…everyone looks better with a smile!
Get out there and do it!