Emotional vs Economic
Emotional Capital vs Economic Capital
Some key principles that are the foundation to this divorce financial planning practice:
The true cost of divorce is twofold. There is the financial burden that one incurs which is the cost most of us are familiar with. Divorce has a second “cost”, which is the one that represents the emotional capital spent in negotiating the divorce. Emotions run high throughout most of this process. At some point in the divorce, the emotional capital spent will be more significant than the economic outlay. Settlements are at times reached because client are simply unwilling to continue the emotional drain that divorce has created.
What motivates a client to hire a financial expert if they plan to hire an attorney?
Neither net worth nor cost should play a role in deciding who to hire in a divorce case. As the saying goes, “It takes a village to raise a child”, so too, it can take a village to divorce a spouse. That village includes a team of experts who each play a different role. The key to containing the costs is to use the most efficient team member to complete a task. If a Financial Advocate can perform a task at a less expensive rate than the attorney, or if a paralegal is less expensive than the Financial Advocate, delegating that task to the appropriate person is the best way to reduce the overall cost of the divorce. If the two sides can exchange financial information without the formality of the legal process, that too saves time and money.
Truly, the expertise of each party should be the biggest motivator in whether to include that expert in the “village”. The speed, efficiency, knowledge and experience of a provider should be the key to the decision of task delegation. Where an attorney is hired to manage the legal process, a financial expert is used far differently. There are essentially two roles a financial expert can play. The first is the role as a Financial Advocate as outlined. The second is a CPA who is expert in business valuation and forensic accounting. If a spouse has a business or professional practice to value, a CPA oftentimes with an ABV designation is brought in to value the company or PA.
If as a self-employed person, a spouse feels the other hid money elsewhere in an effort to hide it from the divorce process, the forensic CPA can be used to find the funds. In cases where one party inappropriately spent money on items such as gambling, girlfriend or boyfriend, or any other activity that might be viewed as “dissipation” by the court, a forensic CPA or Financial Advocate may be used to track the activity and quantify the dollars spent depending on how severe the situation.
The choice of each team member is an important choice. The use of each team member is key to keeping one’s costs in line. Having more professionals in your village does not necessarily increase the costs of the divorce as they are paid for their time. Duplication of efforts and tasks being performed by more expensive providers when they can be done equally as well by a less expensive provider is what truly raises the cost of your case.
In order to reach the optimal settlement, clients must conserve both forms of capital. The process is at times grueling, is highly distracting to one’s day to day life, and will at times be used as a tool in negotiating strategies. As clients oftentimes run out of emotional capital well before they exhaust their economic resources, we look to work with any Mental Health professional involved with the divorce to facilitate the best possible outcome for our clients.