The Settlement Dilemma and Doing The Math

finances divorceBy Scott C. Trout

Managing Partner, Cordell & Cordell

Often, divorce evokes the need to “win,” “to settle the score” or even “to get more than my wife does.”

One of the hardest things divorced dads face in this process is to think logically and economically when faced with any settlement proposal or reviewing his lawyer’s financial advice on divorce.

What does this mean? Well, let me give you two examples:

 

Scenario 1:

John has two children, age 15 and 16, and no significant assets or debts to speak of to divide. John and his Wife have negotiated early on in an attempt to settle.

They preliminarily agree on the child custody schedule, $400 in child support and $500 in alimony.

However, Wife is insistent she is granted sole legal custody. John is likewise adamant they share joint legal custody because there are no facts to support Wife’s claim for sole legal custody.

In their negotiations, Wife counters she will grant John joint legal in exchange for another $100 in child support. John refuses because he will only pay what the child support formula suggests – $400.

Result: Stalemate.

 

Scenario 2:

Mike and his Wife (age 45), along with both of their attorneys, engage in informal mediation in an attempt to settle the case prior to any court appearances.

Mike and his Wife have been married 25 years, while Mike has always been the breadwinner with his Wife staying home the entire marriage. Mike and his Wife agree on child custody, child support, and property division.

What divides them is the issue of alimony (maintenance). Mike refuses to pay anything.  Wife refuses to accept zero.

Wife, recognizing they are getting nowhere quickly, offers no spousal support in exchange for 70% of the equity in their home, which would amount to her receiving $50,000 more than Mike.

Result: Stalemate.

 

Evaluation:

Easy decisions to make you say? Not so fast. Let’s evaluate.

John’s case is easier to break down economically than Mike. Thus, let’s start there.

While most states have a preference for joint legal custody and there no facts to support Wife’s position for sole legal custody, it would seem to make perfect sense for John to remain steadfast with his demand for joint and $400 in support (the maximum amount the court would likely order for child support).

However, let’s quickly look at what Wife is asking for in return for joint legal. While Wife’s demand is unpalatable (using money to negotiate custody), it happens more often than you think.

Let’s do some math. Wife is requesting $100 more per month for child support. Assume the youngest child will emancipate in 3 years and no longer be eligible for child support.  That comes to $3,600 more in child support spread over 36 months.

Assuming John can afford the extra $100 per month, it makes clear financial sense to consider the offer regardless if it exceeds the maximum child support he would pay of tried.

Why? Simple.

John will likely fight the battle and win his argument on child support, pay $400 and win joint legal custody, but he will lose the war and pay two maybe three times more in attorneys fees to his attorney to try the case!

Now, many will try the case because of principle, but your attorney must do this math for you so you can make an informed financial decision.

John can actually save money by agreeing to the offer and get joint legal custody. Often it comes down to dollars.

Now, let’s look at Mike and his more difficult, but similar, choice.

Mike is faced with the real likelihood of paying long-term spousal support to his Wife. His attorney advises the judge will likely award $1,000 per month in spousal support to his Wife if the case is tried.

In Mike’s home state, the law requires the court, if tried, to award open-ended, modifiable support (essentially a life-time annuity).

Mike is adamant his Wife is healthy, can get a job and has done nothing to save for retirement or support the family during their marriage. Therefore, Mike believes he should not pay alimony.

However, Mike realizes the reality that he will pay and thus would agree to support of $1,000 per month for five (5) years and a 50/50 split of the property.

The thought to Mike of his Wife getting 70% of the equity in their home is simply ludicrous. He earned the money and why should he give up 50%, much less 70%!

Let’s do the math. Mike is willing to pay $1,000 per month for 60 payments or $60,000 and he wants 50/50 in property. His Wife’s offer, while patently unfair for her to receive 70%, amounts to a total of $10,000 less and zero spousal support.

If Mike doesn’t do this math and allows the appearance of inequity to control, he loses at least $10,000 and more!

Why? Assume they walk away from settlement and try the case.

Wife is likely to receive $1,000 per month until retirement age, or 22 years of $12,000 per year for a total of $264,000! Mike’s demand for equality would cost him $254,000 plus his attorney’s fees.

When looking for marriage separation advice, what all men need to know is that no offer should be refused just because at first glance it looks unfair, inequitable and one-sided until you do the math and calculate the result.

When giving financial advice on divorce, I always tell my clients they must treat this like a business transaction where the financial impact is thoroughly reviewed. It’s not always about equality. It’s mostly about financial savings.

This isn’t to say that either of these cases shouldn’t be tried. There are many occasions my clients demand fairness and would rather lose at trial knowing they did all they could.

Therefore, what you take away from this is that your attorney must have these discussions with you; otherwise he is doing you a disservice.

Carry the calculator and do the math. It just may produce some interesting results.

Cordell & Cordell has mens divorce lawyers located nationwide.

 

Divorce Lawyer Scott TroutScott C. Trout is the Managing Partner of Cordell & Cordell, a firm focusing exclusively on domestic relations.

Mr. Trout practices all types of divorce, including complex asset and business valuation, in Missouri, Illinois and Georgia. Mr. Trout has been recognized as one of the leading attorneys in the family law area. He has excellent courtroom presence and is well respected by judges, opposing counsel and most importantly, his clients. He has appeared in all three District Appellate Courts in the State of Missouri, the Missouri Supreme Court, the 5th District Appellate Court in Illinois, as well as the 7th Circuit of the United States Court of Appeals.

Mr. Trout has been recognized by his peers and his professional accomplishments by being named Super Lawyer in the area of Domestic Relations for 2009, 2008, 2007 and 2006.

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