The cost of divorces creates a significant financial burden for many families. And the cost of post-decree issues when divorce agreements fail are even higher and in addition to the cost of the initial divorce.
Making matters worse is the fact that these failures can result to substantial financial risk for families that often leads to financial hardship and generational wealth destruction. However, many post-decree issues can be avoided by addressing the causes at the beginning of the divorce and prior to submitting agreements for court approval.
For these reasons, everyone involved in the divorce process including judges, attorneys, other divorce professionals, and divorcing couples have a vested interest in reducing the chances of post-decree issues.
Following is an overview of the costs of post-decree issues, an explanation of the reasons decrees fail, as well as strategies and tools to minimize post-decree litigation and set up families for financial success in the future.
There are several reasons why post-decree issues are so costly:
- FIXING MISTAKES – Correcting problems is more complex and takes more time than preparing the original agreements. It is also emotionally draining to spend money unnecessarily on mistakes that should never happen.
- LIVING WITH MISTAKES – A family may have to bear the costs of a mistake indefinitely, no matter how high, because many elements of an agreement cannot be undone or redone.
- DOWNSTREAM EFFECTS – Additional costs can arise when couples are unable to implement their decree as planned or on time. Examples include increased fees and interest rates due to lower credit scores, fees to delay financing, additional interest paid on debt not paid in full as planned.
On top of the direct costs, there are many indirect costs. These can include wasted time for families and courts, lack of closure for spouses not able to move on with their lives, and increased stress for children fearful of not knowing if they can stay in their current school. Mistakes can haunt families emotionally and financially for the rest of their lives. More importantly, “Sell it and split it” can prevent a couple from ever owning a home again significantly reducing their future wealth and quality of life.
When we say that degrees “fail”, we mean that one or more component of the agreements and the decree cannot be implemented as intended leading to a breakdown of the plan where the desired outcome cannot be achieved.
In general, a decree fails for one of three reasons:
- It never would have worked.
- Would have worked, but something changed.
- It would have worked, but the spouses decided to do something else.
IT NEVER WOULD HAVE WORKED
Most decrees that fail never would have worked from the start, but no one realized it at the time. No one realized it at the time because they were either not looking for failure points or didn’t know where to look for them. The good news is that these problems are preventable when they can be identified and planned for in advance.
There are four reasons why agreements never would have work:
- FEASIBILITY – One or more components of the decree could never be implemented as planned because the parties did not complete their due diligence or a professional completing due diligence was incompetent.
- EXAMPLE – The spouse retaining the residence never could qualify for the new loan to buyout the equity of the departing spouse and get them off the existing loan even though they obtained a lender letter indicating they could do so.
- SOLUTION – Each discrete task in the agreements must be reviewed accurately to ensure it can be implemented as planned.
- SEQUENCING – The order in which two or more of the components of the decree are implemented creates unintended consequences that are not accounted for in the implementation plan that prevent the rest of decree from being implemented as planned.
- EXAMPLE – Due to the requirement for the couple to close all joint debt and open new individual accounts within 30 days and the resulting adverse impact to their credit scores, the spouse retaining the residence cannot qualify for the new loan to buyout the equity of the departing spouse and remove them from the financing.
- SOLUTION – Each discrete task in the agreements must be fully reviewed for any potential impact from other tasks in the agreements to ensure it can be implemented as planned.
- DEPENDENCIES – Implementation of one or more of the components of the decree are contingent on the implementation of other components or they are precluded by the implementation of other components.
- EXAMPLE – Equity from the refinance of the marital residence is required to pay off debt that must be paid off to complete the refinance. This is a simple example, but some real-life situations are so crazy you would think they were made up by a fiction writer.
- SOLUTION – Each discrete task in the agreements must be fully reviewed to identify any prerequisites or preclusions to ensure it can be implemented as planned.
- STRUCTURE – The agreements do not contain the required elements and vocabulary for successful implementation.
- EXAMPLE – Temporary support and maintenance was not labeled as such in the Temporary Orders requiring over six months from the commencement of support and maintenance as ordered in the Final Decree before the recipient spouse can use the payments as income for mortgage qualification purposes and, therefore, cannot qualify to refinance the marital home within the 90-day window as required./li>
- SOLUTION – Each agreement must be reviewed to ensure it includes any specific language required for each task to be implemented as planned and that is does not include any language that prevents any task in the agreements from being implemented as planned.
Other decrees that fail, worked when they were created, but external factors changed. As a result of these changes, the decree cannot be implemented. While these failure points cannot be eliminated, the risk from them can be reduced.
External factors fall into two categories:
- CONTINGENCY PLANNING – These external factors are reasonably likely events that can be identified and planned for in advance to reduce or even eliminate the possibility they prevent the decree from being implemented as planned.
- EXAMPLE – Due to rising interest rates, the spouse retaining the house can no longer qualify for the new loan to buyout the equity of the departing spouse and remove them from the financing./li>
- SOLUTION – Professionals responsible for each task in the agreements must identify the limits of each variable and detail the external conditions required for successful implementation of their task.
- ACT OF GOD – Something unforeseeable, highly unlikely, or severe that is out of anyone’s control prevents the decree from being implemented as planned.
- EXAMPLE – A spouse is laid off through no fault of their own or is permanently disabled due to a car wreck preventing them from paying the non-modifiable spousal maintenance agreed to in the Separation Agreement./li>
- SOLUTION – There is no real solution to “Back Swan” events other than good luck and paidup premiums on property, life, and long-term disability insurance.
DO SOMETHING ELSE
Finally, decrees fail because one or both spouses decide to not implement it as planned. There are two scenarios when a decree is intentionally not implemented.
- BY AGREEMENT – Couples decide to not implement their decree based on an informal mutual decision. In this situation, couples will be in violation of court order, but nothing is likely to happen beyond that if their agreement holds. Often, that is not the case and they both wind up in a bad position legally and financially. Therefore, couples should stick to their agreements or formally update them to avoid costly problems later.
- EXAMPLE – Instead of selling the house and splitting the proceeds, the couple agrees to have one of them buy the other’s interest over time and pay off the loan. A problem would occur if one spouse decides to go back on the agreement and the house is not worth as much money at that time. Another problem could occur if the spouse misses payments on the loan where the other spouse would have no protection against the late payment and be unable to get a standard mortgage for several years./li>
- SOLUTION – i. Educate couples on the importance of implementing their decree as planned and when and why they should formally modify their decree if needed.
ii. Include accountability in the Implementation Plan to increase the chances they implement it.
iii. Incorporate contingency language to formally alter the agreement in specific areas to make it easy for the agreement to be changed formally should they decide to do so. It does not prevent the potential problems, but it does at least formalize any changes to allow remedy in the event their new agreement fails.
- BY NON-COMPLIANCE – In cases where an individual spouse simply refuses to follow their decree, post-decree enforcement measures are limited to a contempt action or a request for the clerk to execute the signing of documentation. There are additional options for a spouse refusing to pay support or maintenance, but options are still limited.
- EXAMPLE – A spouse refuses to sign documentation to sell the marital residence./li>
- SOLUTION – The court clerk can execute the required documents on behalf of the spouse refusing to comply.
IF WE KNOW THE CAUSES…
Now that we identified the reasons decrees fail, we can begin to find solutions. However, there are many challenges to eliminating the failure points for decrees because of the highly specialized information across many fields.
Couples representing themselves “Pro Se” face an insurmountable challenge if they do not have any specific expertise. They are still at a huge disadvantage even when one or both have specific legal, financial, or mental health backgrounds because they still need divorce specific knowledge and experience in all three fields to avoid mistakes.
The reality is most professionals lack the depth and breadth of knowledge in their field as well as the extensive experience with divorce needed to obtain the skillset required to successfully eliminate the failure points. Additionally, it is human nature to focus on what we know, which is why most divorce experts don’t understand the interdependency between the different elements of each decree and each profession.
All too often, professionals acquire a basic understanding of the other pieces and wind up with a false sense of security where they think they can resolve the failure points themselves yet only make matters worse by not quite getting it right or missing other issues they have never seen before.
Even if you had a very experienced professional who was divorce war-horse as a lawyer, CPA, financial advisor, divorce finance analyst, residential lender, commercial lender, credit score expert, life insurance professional, social security authority, mediator, therapist, divorce coach, who could write Qualified Domestic Relation Orders (QDROs) for complex pension plans and executive compensation, they would spend the entirety of their days keeping up with everchanging rules, requirements, regulations, continuing education and licensing.
Finally, there is no defined role or profession in the divorce process to coordinate the different pieces of the agreements and implementation plan. Because there is no defined role, there is no career path or training that begins to scratch the surface of what is truly required to bring together the legal, financial, and mental health professional knowledge to get it right consistently.
With an understanding of the reasons for failure and the many challenges to eliminating the failure points, we can devise the processes and tools required to
reduce the chances of post-decree issues and achieve better results for families.
PROFESSIONAL TEAM–The only way to combine the depth and breadth of knowledge in each field, the extensive experience with divorce, the skillset required to successfully eliminate each failure point, and mastery of the interdependency between each element of a decree is with a team of professionals who are subject matter authorities on divorce in their respective fields of expertise.
TEAM COORDINATOR–The team must include a coordinator role filled by a professional with extensive experience managing the divorce process and creating implementation plans to proactively identify and mitigate potential post-decree issues. The coordinator’s role is to communicate with both spouses and the professional team to lead an iterative review process to verify agreements address all elements of feasibility, sequence, and interdependency issues prior to being finalized.
DIVORCE SPECIFIC CHECKLISTS–Checklists are a powerful tool to ensure the completion of all required steps for any task. However, standard checklists must be updated expressly for divorce. This includes additional requirements to complete each individual task within the divorce process as well as any requirements for interdependency with other elements of the agreements.
ITERATIVE PROCESS–The standard divorce process where each professional does their job in a silo is the cause of many post-decree issues. To resolve this problem, an improved process must include additional steps to continuously evaluate and confirm each element’s feasibility on its own and within the context of potential sequencing, dependency, and agreement structure issues. Furthermore, it must be implemented at the start of the divorce process and reviewed each time there is a change or new task, and prior to finalizing any agreements for signatures. Waiting to perform a review process until finalizing the agreements is not a viable option because too often, too many elements are dependent on one another where changes cause the entire plan to collapse. Additionally, some tasks may need to be completed in advance and simply cannot be redone or cannot be redone without prohibitive costs.
IMPLEMENTATION PLAN–An essential component of any successful divorce process is a thorough plan including specific details about each task. Critical details include assumptions and requirements for timing, sequence, contingencies, variable limits in addition to exactly who, when, and how each piece will be implemented. Without this information, there is no way effectively to identify and resolve the failure points of a decree.
While the cost of divorce is always a concern for families, the costs of post-decree issues can be far higher resulting in financial devastation for couples and their children. For these reasons, it is critical that all divorce professionals and couples facing divorce find ways to increase the success rate of agreements and decrees.
Understanding the reasons decrees fail as well as the challenges to resolving those issues provides a foundation to implement solutions. Working with tools and processes specifically adapted to divorce and with subject matter experts on a team that is intentionally looking for the potential failure points offers the opportunity to minimize post-decree litigation and set up families for financial success in the future.