Collaborative Divorce Team, Inc.

Divorce negotiations can be tricky. I mean if you two were “on the same page” you may not  be in divorce court, right? What makes collaborative divorce process different is that the process itself address the top 5 reasons divorce negotiations go wrong.

Reasons Divorce Negotiations Go Wrong

1. You are at different emotional stages in the divorce process. Just like the stages of grieving when a loved one passes, you will go through (and bounce back and forth between) different stages of grief in the divorce process. This is true even if you are the one filing for divorce. when one of you is not ready emotionally, it’s difficult to engage in divorce negotiations.
2. Fear. One, or more likely, both of you will confront fear at some point during the divorce process. The most prominent fear is that of financial insecurity. When you are in a state of fear, your brain chemistry changes. This makes rational divorce negotiations difficult, if not impossible.
3. Desire to inflict blame or retribution. We can’t help it. We’re programed to blame someone or something when things go “wrong.” And by wrong, I mean differently from what we expected. In no-fault divorce states like Florida, the legal system does not place blame or exact retribution on the “offending” spouse. When one spouse wants to engage in the “blame game” divorce negotiations often grind to a halt.
4. Feelings and emotions get in the way. In the same way that fear impacts our brain chemistry, emotions also affect our ability to negotiate. Emotions are not good or bad; they just are. Until you can work through your hurt and/or anger, the likelihood of successful divorce negotiations are slim.
5. Different negotiation styles. Personality traits, tolerance for taking risks, and familiarity with the topic all influence how we negotiate. When each spouse has different levels of these factors, offers are viewed with suspicion. We tend to automatically default to the “no” position.

Collaborative divorce lawyers and mediators are trained to consider all these factors (and more).  The collaborative process ensures that both spouses will have a way to talk about these top five factors and deal with them in a safe place. Knowing that your needs will be considered is one of the hallmarks of collaborative divorce negotiations.

By Cary B. Stamp, CFP®,CDFA™

Recent court rulings in Florida divorce cases have held that when the alimony calculation is made in a divorce case, all “available sources of income,” including potential withdrawals from equitably distributed IRA and retirement (“Qualified”) accounts should be included (Niederman v Niederman 60 So.3D 544)  These cases have held that even if the recipient is under age 59 ½ and not normally eligible to make a withdrawal without a penalty they may do so using an exception to the normal rules under IRS rule 72(t). The exception in rule 72(t) allows the holder of an IRA or qualified retirement account to make distributions without penalty provided that those distributions are made as a series of substantially equal periodic payments and continue for the greater of 5 years or until the participant reaches age 59 ½.

IRS instructions on using a 72(t) distribution can be found on the IRS website:

http://www.irs.gov/retirement/article/0,,id=103045,00.html#/

Fortunately, the court ruling in Niederman V. Niederman only requires the distribution of earnings on retirement accounts and not the invasion of principal. In that case, both financial experts agreed that a 5% withdrawal rate would not require invasion of principal. Ironically, that case was concluded in 2008 and could not have foreseen the significant declines in the equity markets or the low interest rates we experience on deposits today.  From the prospective of a financial planner, the ruling makes little sense in calculating income. As a practical matter, almost none of our clients choose to draw income from their retirement plans before age 59 ½ and many clients choose to delay those distributions as late as possible until age 70 ½.  The ruling, like most of the laws regarding alimony in Florida, also fails to take into account the effect of inflation on future income needs.  While 72(t) distributions may have a waiver of the penalty of these withdrawals, taxes are always due on these distributions at the time they are made (Roth IRA’s are excluded if the rules are followed).

If we have historic inflations rates of close to 3% and investment returns on a conservative portfolio could average 5%, then the “safe” net withdrawal rate of income on these accounts should be closer to 2%.  Again, as a practical matter, many divorced women are not in a position to take risk with their portfolios and with current rates on fixed income investments at mutigenerational lows, even using a 5% return calculation is aggressive. The conclusion that I draw from these observations is that using rule 72(t) as a source of Continue reading →