Sunday 18th May, 2008

 

Mediation can help in divorce distress

 
 
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One way to double your dollar is to fold it in half, but perhaps the fastest way to halve your money is divorce. Divorce is one of the problems in financial planning for which people never plan. And if one starts planning for it, it becomes a self-fulfilling prophesy and the marriage is doomed.

Divorce cuts an estate into two, not necessarily equal halves, but reduces two people to less than their previous life style habits. One home may have to be sold, or one party may have to find rent money, while the mortgage payments shift to one shoulder.

The courts will warrant payments for child support, children will be shared via visitation and custody, motorcar payments will shift, life insurance policies and bank accounts will have to be re-examined and re-titled.

Typically, life insurance policies that name married women and children as the beneficiary create an irrevocable trust. This is a relationship of trust that cannot be reversed except if the named beneficiaries are of legal age. Then they must be willing to sign a release of their claim to the life insurance proceeds.

This is because life insurance is designed as a device to protect dependents financially by replacing some income, upon the death of the breadwinner. The law interprets that those who marry and those who have children from a relationship, have an obligation to provide for them financially. They cannot be abandoned in law.

When children below the legal age are named as beneficiaries they cannot be released, so while a wife may sign the release, minors cannot.

Many estates are lost out of spite and animosity, when insurance premium payments stop upon divorce, because an equitable solution is refused.

Tangible property, lands, buildings, cars, household effects also have to be legally transferred, and sometimes the complication may lead to abandonment of the property itself eg if the property has an improper title in the first place. The one who gets the house will now have to pay for repairs.

In addition there may be attempts to cheat one party out of what they may be entitled to in the divorce. Some assets are never transferred and that can lead to headaches for heirs, generations later. People often forget about tax liabilities, liquidity and cash flow issues. If there is a business involved there are further complications since the business now has to be valued and brought to the negotiation table.

Further, if the reason for the divorce is a third person, than one may spend the rest of life supporting two families, instead of one—an ever greater subdivide of earnings and assets. But it doesn’t always end there: after one dies, heirs from the different marriages/relationships are likely to fight over the estate, and contest the will in court. This can prolong probate up to five to ten years.

In making a proper will that avoids contest in the courts, it is recommended that you leave consideration, some dollar amount, for every possible heir, including any children from clandestine relationships. It is even more critical, if you have experienced divorce and remarriage. Remember too that remarriage negates any previous will.

Divorce is really an expensive thing. The lawyers make money over your distress. Mediation is a sound alternative, is cheaper and may actually resolve the issues and prevent the divorce.