Over the past several years, alternative dispute resolution (ADR) methods such as mediation and collaborative law have been increasingly applied to the divorce process. This phenomenon has been largely due to 1) incompatibilities between our advocacy system and the need for viable outcomes, and 2) an increased recognition of the importance of resolving emotional issues, particularly those involving children. In short, these approaches sometimes lead to better results than traditional methods.

The increasing application of ADR is indicative of the fact that the traditional approach to resolving issues in divorce is flawed. However, mediation and collaborative law are simply alternative approaches to resolving disputes and not necessarily approaches for achieving better financial outcomes. Success in ADR is often measured by the ability to achieve the same results as in traditional litigation, albeit in a less contentious or less prolonged fashion. With the advent of no-fault divorce, and even with the archaic application of fault in states such as New York, divorce has become largely about money. This has brought to the forefront a new dilemma for the divorce practitioner — how to resolve the divorce, whether through litigation or through alternative means, not only amicably but also in a financially workable and sensible way.



Divorcing clients need to make important economic decisions as they go through the process. If they make bad decisions, they will more than likely have to live with the consequences of those decisions, and these can be financially and emotionally devastating. Since there are serious pitfalls and difficult decisions to be made, people going through divorce need expert financial advice. While they have traditionally relied on the attorney or the mediator to provide such advice, and while many mediators and attorneys have come to accept this role, the requisite financial knowledge and skills are often outside their areas of training and expertise. This can potentially lead to problems.

Failure to add financial expertise to the divorce process means that financial outcomes are often based on the fruits of strong advocacy or on incomplete or inaccurate information and limited insight (and foresight), creating a house of cards. Any slight movement or disturbance causes the house to come apart, often with disastrous consequences. The financial divorce is sometimes so poorly constructed that it simply self-destructs over time.

Some divorce professionals have begun recently to realize they can better serve their clients by directly incorporating outside financial experts – particularly financial planners – into the pre-divorce process. A new trend is emerging: Divorce Financial Planning.



Although most financial planners have the relevant tax and financial knowledge to act as traditional “outside experts,” their best contributions come from a more intimate involvement in the divorce process. The broad educational background of the financial planner is ideally suited to this type of work. Because planners have traditionally helped individuals achieve long-term financial goals, eg, saving for college or retirement, they have specialized training and skills that enable them to analyze financial issues in their long-term economic contexts. During the divorce process, this often sets a more positive and productive tone for discussion, provides reality checks, empowers individuals to make wise and workable decisions and hard, but often necessary, lifestyle adjustments. It also enables them to address insecurities about financial consequences, power imbalances and emotional agendas that often impede the decision-making process. The parties frequently feel more comfortable and secure with the choices they are considering, find workable solutions more quickly (often at less cost) and become more aware of post-divorce changes in standard of living, ultimately making them less likely to need to revisit support issues in the future.



The earlier the financial planner becomes involved in the process, the more likely the situation will not escalate out of control, and the more likely good financial decisions will be made. The financial planner can help stabilize the situation, including helping determine shortterm support needs or paying abilities, closing or re-registering accounts, changing beneficiaries on insurance policies, notifying credit card companies or establishing credit.

One of the most important steps in the pre-divorce financial planning process is rigorous discovery — the collection of accurate, complete and reliable financial data. The earlier the discovery process is initiated, and the more scrupulously it is done, the better off the client will ultimately be. Collecting, inventorying, organizing and analyzing historical data is one of the cornerstones of the financial planning process and is probably best done by the divorce financial planner. The less reliable the information, the more likely bad decisions will be made, and bad decisions made early can complicate financial issues and cause more bad decisions or other serious problems in the future.

The more meticulous the data collection process, the more reliable and useful the input of the financial planner will be. Therefore, it is extremely helpful if the financial planner is intimately involved in this aspect of discovery. Proper collection of data is a time-consuming, but important, aspect of the divorce process and should not be left to a paralegal. Further, negotiation of financial issues should not be initiated without a complete understanding of all financial parameters.



Statements of Financial Position and Cash Flow are additional cornerstones of the financial planning process. These are important because clients need to have a good understanding of both their current and future assets and liabilities and their current and projected income and expenses. Historical information is also important in that it provides insight into predivorce lifestyle and standard of living.

The following are examples of some of the many problem areas that need to be avoided or addressed in as careful a fashion as possible:

  1. Cash flow information is often extremely limited, inaccurate or incomplete. Sometimes, based on premature assumptions, only the wife’s (for purposes of this discussion, the husband is assumed to be the primary income provider) estimated monthly expenses to support living in the marital residence with the children are listed, and sometimes this information is not collected or analyzed in a thorough fashion. There are risks inherent in this approach, and other scenarios should not be rejected outright at this time. For example, being asset rich and cash poor can have serious consequences.
  2. Cash flow information for the husband is often even more limited, or is ignored. Information for both spouses is important because the husband may be paying spousal or child support, and both parties will need to understand and come to agreement not just on what the wife’s needs are but what the husband can afford to pay.
  3. Information on assets and liabilities is often inaccurate or incomplete, even if formal discovery has taken place. This is sometimes due to an incomplete global understanding of what constitutes property subject to division, is sometimes a byproduct of the advocacy system or is sometimes simply a consequence of not analyzing assets and liabilities in depth. A prime example of assets that are sometimes ignored or neglected is executive perks.
  4. It is sometimes assumed that the primary wage earner (often the husband) is well equipped to manage post-divorce finances, resulting in inadequate attention to this side of the equation. In my experience, this may not be the case. Both parties need to have a clear understanding of their pre-divorce cash flow and both need to be well equipped to manage their cash flow post-divorce.



I have heard many people say they had no need to budget in the past because there was always more than enough money to go around. From a financial planning perspective, budgeting is important no matter how much money is earned or what the expenses might be. Further, total expenses are likely to increase once the parties have separated. While some people view a budget as a “financial diet,” perhaps even a punishment for sins they might have committed in the past, this could not be further from the truth. A budget is simply a basic type of financial plan, a plan for managing cash flow. It is important that it be understood by both parties, and it is also important that it be balanced.

In addition, the parties need to construct a historical budget. This means going through the checkbook, bank, brokerage and credit card statements, etc., and compiling and organizing actual expenses. This is a time-consuming task and may not always be completely achievable, but going through the process can, in addition to providing insight into pre-divorce lifestyle, teach individuals how to use and adopt financial management tools, such as Quicken®; educate them about the value of budgeting; and help them become better able to manage their money as they move forward.



The general strategy for handling these issues is to calculate the needs and paying abilities associated with particular settlement scenarios to determine how best to fund them. Tax planning is often an important component of this process. On the surface, it might seem that the best solution would be to allocate as much of the support as possible to spousal support and give the dependency exemptions to the husband. In many situations, however – especially under the new tax law – the calculation is much more complex. For example:

  • The husband’s income might result in a phaseout of the value of his itemized deductions or a reduction in the value of his dependency exemptions.
  • If there are substantial mortgages on certain properties, and the husband is deducting large mortgage payments, he may be subject to the alternative minimum tax. This could also affect the value of the itemized deductions and dependency exemptions.
  • The husband’s income could make him ineligible for the Child Tax Credit, which is currently $1000 per child.

If the husband is a high wage earner in a high-income state like New York, he might otherwise be affected by the alternative minimum tax, and this may severely restrict the tax benefits he receives from his spousal support payments. Depending on the amount of spousal support, and the income of the recipient spouse, it is possible that she might also be affected by the alternative minimum tax.

The amount of spousal support, and how periodic payments should be allocated between spousal support, child support and a distributive award, should be related to needs, paying abilities, tax consequences and potential financial risks. It will vary with different settlement scenarios and therefore needs to be calculated each time a specific scenario is being considered. The duration of spousal support should be determined by the time needed to rehabilitate the recipient as well as the agreed-upon parenting plan. It should not be calculated using a formula such as one based on length of the marriage or the respective gross incomes of the parties.



Once the financial parameters are completely understood — and only then — should the parties begin the negotiation process. The two most important factors in this process are the workability of the settlements and the short- and long-term goals of the parties. Assistance with these issues is probably the most important role of the financial planner in the pre-divorce process.

The planner can:

  • Help the parties translate their goals into workable solutions;
  • Determine which proposals are workable or what actions might need to be taken to make them workable;
  • Educate the parties about the longterm consequences of specific proposals. This helps the parties feel more secure about the process and more comfortable about reaching an agreement. For example, they should fully understand whether they will have sufficient assets or income to manage their finances, whether they will be able to afford support payments or whether they will be able financially to survive or prosper over time;
  • Suggest alternative scenarios to the parties when necessary.

Potential Benefits of Pre-Divorce
Financial Planning to Clients

  • More thorough treatment of financial issues.
  • Better settlements.
  • Avoidance of mistakes.
  • Increased likelihood that an eventual settlement will work.
  • Better understanding of post-divorce financial situations and what might be needed to make them work (reality checks).
  • Reduction in emotional distractions and fears and greater focus on financial issues.
  • Greater focus on needs and paying abilities and less on entitlements.
  • Greater confidence in results and reduced stress in achieving results.
  • Empowerment through knowledge, making work sessions more productive.
  • Acquisition of money management tools, such as proper budgeting.
  • Increased client optimism for the future.

Benefits to Divorce Professionals

  • Same as the client benefits listed above.
  • Reduced liability or concerns about liability.
  • Reduced stress.
  • Increased efficiency and productivity.
  • Reduced need to revisit financial issues.
  • Increased long-term client satisfaction, potentially leading to additional client work and expanded referrals.
  • Increased ability to focus on the negotiation process and not get bogged down with the financial issues.



Although this may seem surprising, the divorce planning process is similar in both litigated and mediated cases. There are some major differences, however. For instance, the discovery process in litigated cases is more formal and implies a lack of trust. The formality of the process often makes it difficult to feel confident with the respective needs and paying abilities of the parties. The financial planner in litigated cases might be asked to provide expert testimony in court. Alternatively, the informality of the discovery process in mediation is potentially subject to abuse, especially if there is a power imbalance during the mediation process. Involving a financial planner in the process is a good compromise in both mediated and litigated cases.

During litigation, the financial planner acts as a litigation adviser to the client and the client’s attorney. Information provided by the financial planner may help the attorney or client 1) identify discovery needs; 2) determine the need for hiring outside financial experts such as forensic accountants; 3) prepare experts for depositions; 4) prepare pendente lite motions; and 5) get ready for trial, etc. The financial planner may also participate in two-way or fourway meetings. During these meetings, as in mediation, the planner’s input will help to achieve a workable settlement.



There are some potential problems that may be encountered when engaging a pre-divorce financial planner, but they should be minimal as compared with the benefits that will be derived from the collaboration. For one, the divorce professional will likely lose some control over the process, so it’s important that the divorce professional and financial planner interact well. Second, the later the financial planner enters the process, the more likely financial errors will have been made. Since the planner will see these errors, this can be disruptive to the process and may set it back. In addition, the negotiation process may be periodically interrupted to collect, organize and analyze financial information.

If these considerations are not offputting, the attorney may find the following resources to be helpful in finding a divorce financial planner:

The Association of Divorce Financial Planners (www.divorce andfinance.com; 800-270-1886), a professional association of divorce financial planners and divorce professionals with an interest in divorce financial planning, maintains a membership directory, including information about background and experience, on its website.

Two companies offer divorce financial planning training programs to financial planners and maintain listings of divorce financial planners on their Web sites: The Institute for Divorce Financial Analysts (www. institutedfa.com; 800-875-1760), which confers the designation Certified Divorce Financial Analyst (CDFA™), formerly designated Certified Divorce Planner (CDP), to its graduates; and the Financial Divorce Association (www.fdadivorce.com; 888-332-3342).

Divorce & Finance