Getting Ready for Mediation – Understanding Your Money

Mediation is a great way to settle your divorce; it gives you control of the outcome (instead of a Judge deciding things you get to decide), it goes as fast or as slowly as you need it to and it tends to lead to an agreement that sticks (sticks is a technical term for an agreement that works for both parties and one that does not result in going back to court).  However, like any negotiation, you must go into mediation with your eyes open and with a clear sense of what you want and what you are prepared to settle for.

So what in practical terms does that mean?

As much as you can, setting objectives that are realistic for your situation is the first step.  What do you want?  Where do you want to live in two years?  What is needed for your children and what is in the cards for them in the five years; is it college or middle school?  These are big decisions to think about and are sometimes very difficult to get your mind wrapped around them.

The first thing to do is to take a reality test on the financial side.  What does the money situation really look like?  How much does your family earn and is that income stream stable.  Do you have one or two incomes?  How much of your income is currently being used to support the lifestyle?

If you are a stay at home spouse, in all likelihood you will be required to work to maintain your standard of living. You need to understand the “gap” in your money.  If it costs you $10,000 per month to live and you are only going to get $5000 in support you have to find $5K a month; a difficult thing to do if you have not worked in a number of years.  If the rule of thumb on alimony (1/3 of the difference in spousal incomes) does not get you to the number you need it’s time to evaluate your “needs” and take it from there.

  • How do I earn enough to meet my “gap”? Will I have to go back to school or change professions?
  • If I do need to go back to school; which schools costing how much and for how long?
  • Where is there slack in the budget? Can I refinance the mortgage at a lower rate or extend the amortization term to reduce my payments? Should I trade in the Lexus and get a Honda Accord reducing my monthly payment by $300 per month? Do I really need a message/facial/manipedi/ (fill in the blank) every week? Can I join the YMCA instead of hiring a private trainer?
  • Are we currently (as a family) struggling pay-check to pay-check; if so something has to give.
  • The sooner you get a real handle on your money situation, the sooner you will be able to build a plan and structure alternatives that work.
  • You cannot make good decisions if you do not understand your money situation.

If you are the primary breadwinner how will your situation look once you start paying alimony and child support.  Will you be able to adjust your level of withholding to reflect the alimony payment?  Will you need to reduce your IRA?/401K investments for a few months until you adjust to lower cash flow?  Ditto on the mortgage comments above if you are keeping the house.  Do you really need a second car?

One of my clients was told by his lawyer that to get his divorce settled he had to offer $2300 in alimony and child support of $300 per month.  When we looked at his cash flow it just did not work.  He would have had no money for clothing, lunches or a cup of coffee at work, car repairs, oil changes, nada.  This level would have resulted in a hole of about $600 per month.  Without a real understanding of his cash flow he would not have been able to determine his situation and allowed his lawyers to put forward a starting point that would have ruined him.

Remember this is a negotiation and there is very little that is set in stone.  If the cash flow is just not sufficient to support two households perhaps you can offer a lump sum payment to the other party in exchange for no alimony.

Once you wrap your arms around your money you will be able to negotiate powerfully from a position of understanding.  As you prepare for your divorce, this is an essential step.

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