Don’t Let a Judge Do This to You

A divorcing couple lived in a state that did not enjoy the option of the collaborative law divorce model. They chose to hire litigious attorneys and let the attorneys do the fighting while they retreated to their respective corners, never talking to each other, or so they claimed. (They have three little children, so they must have talked about exchanging them each week.)

Of course, they could not agree on how to divide their property. They had a modest income, a modest house, very little cash, some credit card debt and a couple of retirement accounts. Had they worked collaboratively and with the assistance of a CPA who understands the nuances of divorce financial issues, they could have divided their property in a way that would have achieved both their goals.

This couple eventually ended up in front of a judge, having spent all their cash on their divorce attorneys and even further under credit card debt. The judge divided the property and debts in a manner that he, no doubt, felt was fair and equitable. Unfortunately, is was not financially wise nor was it creative.

This judge divided the property and debts in an overall 60/40 split, with the greater share going to the wife. The husband was granted the home and ordered to pay the wife for her share of the home … with cash and pretty darned quickly, too. His Honor did not inquire as to how the husband was going to get his hands on this $60,000 of cash. He did not inquire as to whether the husband will qualify for a refinance mortgage. Perhaps he did not care. Perhaps he was tired of settling marital disputes for angry, emotional couples who foolishly refuse to talk to one another.

If the husband cannot qualify for a refinance mortgage, he will retain the existing mortgage and the ex- wife’s name will remain on that mortgage obligation. She may be unable to buy a home for herself. Her credit will be tethered to that of her ex-husband as long as her name is still on that mortgage. What mortgage company will wish to give this woman (with a very modest income) a mortgage when she already has one? Furthermore, the husband will have to cash out a sizable portion of his retirement to pay off the wife, incurring unnecessary and avoidable income taxes and penalties.

To me, this is a sad story. This financial debacle was avoidable with collaborative efforts and the aid of a CPA with financial planning expertise, such as a PFS designation. Particular knowledge in divorce issues is a plus. If you are contemplating divorce or in the midst of divorce, stay out of the courtroom. If for no other reason, do it for your own financial security.