0182: What happens after signing a divorce settlement? (Part 1)

Visit us at divorceandyourmoney.com for the #1 divorce resources in the USA and get personalized help. Learn about coaching services here.   Thank you for listening! Find a transcript of this episode below.   In this episode, I want to discuss what happens after you sign a divorce settlement. The past month has been one of the busiest I've had in a while and the end of the year is looking to continue down that path. You know, as I've mentioned on a previous episode, the tax laws regarding alimony in divorce change in six months, and so that's creating a lot of pressure for people to get their divorces wrapped up before the end of the year, because there's often tax benefits to both sides, for wrapping up this year instead of delaying a year when the law changes in a big way.                                     If you don't know what I'm talking about, be sure to listen to episode 170 for some of the details and I'll be discussing it more in future episodes. But one of the things that's happened over the past month or so is that a lot of cases I've been working on are wrapping up, which is a bittersweet feeling for me.                                     I'm of course always happy that people are finishing their divorce and they get to move on with their life. But also, I feel a little bit of sadness because I get to work closely, closely with you during the process, during a tough time and then, many cases, we part ways and we don't have to speak with each other any more, which is also fine, but I do very much enjoy working with you. It is the nature of what I do.                                     And one of the things that a couple people have mentioned as their cases have wrapped up and they said, "Shawn, you don't really speak much about what to expect after the settlement's assigned. What should I be doing?" And I want to provide you some guidance to that effect. Now, of course, it varies for everyone, but I do want to outline some of the details of the divorce process once you have that settlement signed.                                     Most of you are going to go through the process where you negotiate a settlement and you sign the settlement, versus where a judge makes the final decree in terms of who gets what. Now, some of you do have to go that way, particularly in the tough divorces, but I expect most of you will be negotiating and signing some form of settlement.                                     And so what does that look like? And then what do you do afterwards? What kind of things should you be thinking about after divorce? One other thing I want to bring up is I have a, I think it's a seven or eight part series on choosing a financial advisor and financial topics you should know after divorce in the quick start guide. It's in the store. It's part of the full archive of the podcast. That might be something for you to check out because that is some critical information.                                     I mean, it's hours of information just of like basic financial concepts, how you choose a financial advisor, how do you know what to look for, how do you make sure you make the right option? But anyways, one of the things I want to talk about is, so how does the settlement process wrap up and then what do you do afterwards?                                     Now, for some of you, your settlement process actually might occur in two phases before you get to the settlement agreement. There's the part of the settlement that I might call the term sheet, which is ... in this part of the settlement, you outline basically everything that you want and your spouse wants on a sheet of paper or a few sheets of paper, without really legal terminology in there.                                     The way to think about the term sheet in a way is like, if you ... and I've had some clients do this, if you and your spouse, were to negotiate by email and you say, "I want this house," or "I want the house, you can keep this car, I want this car, we're going to split custody in this way," but you just go back and forth by email.                                     And then you say, alright, here's the final email with everything that we want. And you say, okay, good. That's the kind of the term sheet part of it. And what you do with that term sheet, I call it, because that's what you use, that's what you call it in the investing world. You say, all right, we have a term sheet, let's make it legal.                                     And so the term sheet is here's all the details that we've agreed to, and then you take it to your attorney and say, "Can you please draw this up in the appropriate legal framework so the court can sign off on it?" And so, for some of you, that's the first phase. Now, not everyone goes through that step of negotiating a term sheet first. Some of you go straight to the actual legal settlement document.                                     In which, you're going to get to this document in one way or the other, but sometimes it's just depending upon your process, you go through the term sheet phase first. But when you get to the legal documentation, this is when the attorney drafts up exactly what each of you is getting.                                     And the legal documentation, you're going to really want to pour over every word, every phrase, every sentence in this document to make sure that it not only matches what you agreed to, but also is what you want. I've seen cases where people sign settlements and they don't read it closely and you go back a few months later and you look at it and you're like, "What did that paragraph mean?" Or, "That's not what I wanted it to say. I thought it was supposed to be this," and that can easily be avoided by studying your settlement in the first place.                                     And let's just say you've gotten through those two phases. So you've got your term sheet, you've gotten a settlement and everything is wrapped up and you submit the paper to the court. That's an important step three, remember, just because you signed the settlement agreement ... This is an interesting topic that I actually will get into now; I didn't anticipate talking about it now.                                     So depending upon what's going on, you can sign and agree to the settlement agreement and sign it, have everything done, but not submit it to the court. And if you don't submit it to the court, you will never be divorced. But there are reasons sometimes that you might not want to submit that settlement agreement to the court and you might want to delay. Now, there's many moving parts when it comes to delaying, particularly with the tax law changes and other things.                                     But, if you wanted to delay, you can, and I'll give you reasons that people delay that come up pretty regularly. One is for tax purposes for filing jointly. So let's just say, you know, we're getting to the end of 2018 as I record this and, you know for tax purposes or you think for tax purposes, you want to file just one more time as a married couple because it makes sense for you. I know plenty of people who will negotiate their full settlement, sign the paperwork and not submit it to the court and just say, "Hey, we'll submit it to the court in 2019," the next year. Because for tax purposes, it'll save them many thousands or tens of thousands of dollars.                                     I've had some lesser common reasons, so one of my favorite reasons, I had a client who I'll just say lives in a town with one golf course and in order to keep their membership active at the only golf course in town, they wanted to stay one more year on the married membership because as soon as they became a divorced couple, they would be doubling their membership dues.                                     And if you know anything about golf courses, those dues can be in the tens of thousands of dollars. So to save one more year playing golf, they decided to save some expense. They decided to keep their membership, or themselves divorced, or excuse me, I should say, let me restart. They kept themselves married until they renewed their membership as a married couple for one more year, so they could save up the extra money for the golf course and the increased golf dues they were facing.                                     There could be any number of reasons that you may want to delay your divorce. And so, some people may do that, but you also need to keep in mind that if you have not submitted the paperwork to the court, you cannot get divorced and you should not be making other major financial decisions until you know exactly what is planned. And I'll give you an example of why that's a big deal.                                     I have a client who needs to ... I actually have several people in this category, who need to refinance their home. And as part of the refinancing process, the first thing the mortgage lender says is, "Hey, where's the paperwork that says you are divorced?" And so, they will ask for, that court signed, judge signed, county signed document that says I am officially divorced before they can make any major financial moves.                                     But let's say you submit the paperwork and you have everything in the court and everything is good to go. What do you do? Well, you wait. Unfortunately, just because you've signed the paperwork, just because you submit the paperwork, still doesn't mean you're divorced. And depending upon where you live, it could still be many, many months before you are divorced in the eyes of the law. I'm going to give you an example.                                     I spend a lot of time in New York, in New York City, and have several clients there. Some cases, this is crazy, even as I think about explaining it, you can file for divorce and submit the paperwork in August, so the eighth month of the year, and I'll tell you why this is relevant in just a second. We can file the paperwork then. You can get through the end of the year and not have official divorce paperwork.                                     I've had cases where someone files paperwork and August and they don't get the divorce paperwork until February or March of the next year. And because the New York court is so backed up and there's so many cases and not enough judges and not enough resources, unfortunately, in many cases, that it takes the court six months or can take the court six months to officially recognize the divorce.                                     Now, of course, they know that they'd be causing a lot of trouble for people if the divorce didn't go through until February. What happens is the New York court is so busy and they understand how much turmoil that could cause is they will backdate the divorce papers oftentimes. So if you file for divorce in August and they don't get to it until February, they'll say, "Hey, sorry, we just got to it. But because you filed it an August, we're going to consider you legally divorced as of December 31st of the previous year."                                     But the point is to bring up is that just because you filed the paperwork still means you need to wait. And from a practical perspective, you've just gone through a very intense process. And even though it's not over yet, one of the first things I recommend you do is you wait.                                     No need to rush into major decisions. Right after you file the divorce paperwork and you submit it to the court. First thing I say is breathe. Relax. Take a week or two. Focus on yourself, focus on your kids, your family, your work, whatever you've been neglecting during this process. Now that you've gotten this major step involved, take some time to get back to normal or to prepare for the future and don't make any major decisions unless you absolutely have to. If you take some time to breathe, you will get into a position where you can think clearly about the next steps of your life and the next phases of your life and get organized and prepare for the things that we need to do and that you will need to do as you go forward.                                     Once you've taken some time to breathe, decompress, relax a little bit. I want to cover two main areas that you're going to need to focus on going forward. I'm going to cover these in the next episode. The first thing you're going to need to do is you're going to make sure that you get and give up everything that you agree agreed to as part of the divorce process. And the second thing you should do is update all of your accounts to make sure they reflect your new reality.                                     Stay tuned for the next episode. I'm going to get into those very soon and get into some of the nitty gritty details of what those two things mean.