#104 - Making Better Divorce Decisions to Protect Your Financial Future

Eric Blake: Welcome to another episode of the Simply Retirement Podcast. I am your host, Eric Blake, practicing retirement planner for over 25 years, founder of Blake Wealth Management, and I would not be the man I am today without the women in my life.

On today's episode, I am joined by Carolyn Daly, managing partner of the Newark office of Cohen Seglias Pallas Greenhall & Furman.

Carolyn works with individuals and families navigating divorce and complex family law matters, and focuses on helping clients move through these transitions with clarity, structure, and as little conflict as possible.

Today, we're talking about divorce, decision-making during divorce transitions and emotional transitions, and how to avoid costly mistakes, especially for women navigating retirement, major life transitions, or just what comes next.

Carolyn, welcome to the Simply Retirement Podcast.

Carolyn Daly: Thank you, Eric. I am really happy to be here. I love this topic.

Eric Blake: Absolutely. I know I really enjoyed the first conversation we had and having you on the podcast. It's been a few weeks since we had that conversation. I'm excited to pick it up here.

And I know you spend a lot of time helping people, women specifically, navigate divorce and some of these high-stakes family transitions, and I think that's a great place to begin. Just share your background and what led you to the work that you're doing today.

Carolyn Daly: Sure. Great, thanks. I often joke that family law picked me.

I started my career in law as a law clerk, and I thought I would be clerking in the criminal part and future prosecutor was sort of my thought. Then I ended up with my judge transitioning from criminal law into family right before I started, so I started in family law.

I did that for a year as a clerk, and then I joined a small firm. I had three great mentors, all men, and they did a variety of practice areas, but one of them was family. So I did a lot of family, and I kept saying to myself, "I just don't know that I want to stay in family. This seems really hard and emotional for people."

But family said, "No, you're staying," and I went into a partnership and then really from there just did family law. That was probably 20-plus years ago.

So I really love the opportunity to help people solve the puzzle that is their divorce or the situation, maybe it's post-judgment, that they find themselves in so that they can make better decisions and end up in a better place afterwards.

Eric Blake: Perfect. Well, one of the things, when we had our first conversation, we talked about sort of both of our passions about working with women close to that retirement age or nearing or in retirement.

I'd like to start just to get your perspective on what challenges do you see most often for women who are going through divorce, especially in those later years, whether they're in retirement or approaching retirement?

Carolyn Daly: Yeah, I think one of the biggest challenges is making decisions about what assets you are really concerned about and actually just marshaling, knowing what your assets are.

I have a lot of women who don't know exactly what they have. They may have some idea. "Yeah, we have a house, and we own a second home. We have some bank accounts and some investments and some retirement." But they don't really know what it all is.

Maybe they haven't been involved in the meetings with the financial planners. Maybe there haven't even been a financial planner, which always surprises me.

So I think one of the biggest challenges at the start is to say to them, "We need to figure out what exists. We need to figure out what the assets are, and then you need to make some decisions about what it is that you're going to keep."

Because I think one of the biggest fears for people, both sides, but women in particular, is what happens next? What do I have to work with? Can I live all by myself on this?

And I think when I start to get into those discussions, one of the biggest areas that I talk to clients about is many women are tied to the house. They feel like the house is very important. They want to keep the house. They want to buy out the husband's interest in the house.

At that point, the house may be a million-dollar asset with very little mortgage on it, so it's a lot of money and capital they're going to give up. They're often trading that against retirement assets.

I tell them, "You're never getting that money back. That's a really bad idea. If we have something else you potentially could trade it against, then maybe I could see it making some sense. But generally, if your kids are grown, you should sell the house. You should sell the house, cash out the money, and put that into some investments, buy something smaller, rent."

You're really going to appreciate downsizing your life because typically they're at that stage.

Eric Blake: Well, that kind of leads me to my next question because I know the house is such a big piece of that puzzle, but there's also other areas.

Where do you see people unintentionally creating more stress or costing themselves during the divorce process?

Carolyn Daly: On the financial side, I think there's a lot of stress about retirement monies and what that is exactly, what that looks like.

I think sometimes people opt to have pensions valued, and they get bought out of the pension. I don't love that idea for anybody. I think if there is a pension, which is a stream of income that's going to exist, and a plan that may have things like COLAs, which is a cost-of-living adjustment, you are much better just dividing that pension and getting that money when it comes time to get that money, as opposed to getting cash in lieu of it, particularly if it's a retirement asset.

I think depending upon who's on the other side, a lot of people are very attached to their pensions. They don't love the idea that somebody is now going to take half of their stream of income, so they're often very quick to say, "No, no, no, no, no, I'll just give her the investment account. She can have the investment account. I'm keeping my pension."

Yes and no. I don't know. One of the things I talk to people about is let's look at your investment account. Do you have a lot of assets or positions in that investment account that have high capital gains potentially? Or short-term or long-term capital gains?

Because when you liquidate a million dollars, 900,000 of which is capital gains, you're going to lose a lot of that money.

So I think that's one of the other issues where people struggle. If you're not smart and you're not looking at those assets, it's easy to say, "Hey, we have a stock portfolio that's got a million dollars in it, and we have all these positions, and that looks really great."

Okay, but what is that really worth? What is that really in net dollars?

Oh, by the way, when he wants to give you all the Apple stock that you bought in 2007 and keep all the Exxon stock that you bought last year, that might not be a good deal for you because you may have a lot of capital gains baked into that Apple stock so that you can sell it, but you're not going to actualize, you're not going to net what you need.

And he could sell the Exxon and keep 90% of what the position looks like.

You really have got to be working with somebody who is drilling down and looking through those things, and that's just on what I call the simplistic, "I have a brokerage account at E-Trade." I'm not even talking about stuff that's even more fancy or interesting than that.

Eric Blake: Well, and I think it's interesting that you brought that up. I'd love to get your perspective on how the work you do combined with bringing in financial professionals can assist or provide additional guidance.

I had the story of a prospective client at the end of last year who reached out to us and said, "Hey, unfortunately, we're getting divorced. We've been married for 20 years." She was the stay-at-home mom. They have an 18-year-old son.

Her first comment was, "He's had a financial advisor since we were first married. I have never talked to this person."

She was in that exact boat of, "I don't know what we have."

Then as she shared what they were suggesting as a split, they had 401 money versus IRA money and were saying, "Well, we're thinking about the IRA money."

She's 53, so back to your liquidity point of what am I going to live on if I can't touch this money until I'm 59 and a half versus potentially a QDRO arrangement and these other issues.

Back to my question, where do you see the financial professionals coming in to provide guidance in the work that you're doing and putting a client in a better position?

Carolyn Daly: Oh, listen, I've been bringing financial planners in with clients for years, almost since I started.

I looked at people and said, I mean, I'm sure just in you and I talking, I'm very sophisticated and understand the financial side of it, but this is not what I do. I'm your divorce lawyer, and you really want to have somebody that you can talk to about this and start working with and hopefully stay working with.

One of the challenges I've always had is somebody comes to me and says, "Hey, we have this financial planner. I've not really ever spoken to him, but he says that he can handle and help all of this."

I sort of cringe because I say, "I'm not sure he or she is completely neutral."

I'm not saying that to suggest that that financial professional is not doing something ethically. If they've only worked with your husband or your wife for 20-something years, whether you will see it or not, they will intrinsically have an affinity because that's who they've worked with.

I think it puts a financial planner in a difficult position.

So I generally try to get on the call and say, "Listen, if you can at least give me a financial statement, tell me what they have." Most financial planners can press a button and send me what the financial statement looks like and break down all the assets and everything else. That would be really appreciated.

But I don't want to put you in an uncomfortable position of having to navigate between these two people who are getting divorced.

I think once in 30 years I had someone keep their person, and it was like a delicate dance to make that work.

Because at some point somebody's going to have a question about things that I just said to you. "Well, what's the tax basis in this, and what does that mean? Oh, what do you mean he's trying to give me all the Apple stock? Is he trying to screw me? Are you not helping him try to screw me?"

It doesn't work well.

So I always say it's very hard, and I think you'd agree with me. If somebody's going through a divorce, you're probably not keeping both clients. But you're keeping one of them, and the other one needs to find someone else.

So I like that person involved very early on because they can run me all the scenarios that I need to say, "Hey, if we keep the 401 and we trade off a portion of that against the investment account, what does that look like? Can you run me a projection?"

We call them Monte Carlos. I mean, you call them Monte Carlos. People may or may not understand that, but it's running the scenario that essentially shows people what does that look like in 10 years.

Okay, I don't love that idea. What if I keep the house and I give up some of my retirement? Show me what that looks like.

That I never love, but I sometimes do that to show a client, "You want to do this. Let's talk it through. I can appreciate why you want to, but do you see now maybe why financially this doesn't make sense?"

I feel like it helps them make better decisions at the end of the day because I can very easily say to someone, "I agree with you. Keep the house. I understand why it's emotional and you want to keep the house, but in five years when you're struggling, you're going to be mad, and you're going to be mad at me, you're going to be mad at your financial professional."

Let us help you get a resolution that serves you in the long run.

Eric Blake: I think that's great, and I think that's one of the things I wanted to ask you about next.

You talk a lot about making a no-nonsense approach. So how do you help clients just slow things down and hopefully, as best you can, pull at least some of the emotions out of it just to make better decisions? How do you help clients do that?

Carolyn Daly: I have real conversations with them. I don't know how else to describe them. I have authentic, real conversations with them.

I tell clients all the time, "I work for you. I work in a service industry." I think a lot of times lawyers forget that, but I work in a service industry. I'm serving you.

So I'm going to give you a whole bunch of options and some scenarios for how you can move forward, and I'll even spreadsheet them out for you so you can look at them.

Please take them. Let's work with the financial person to actually run them out in projection to see what they look like, and let's talk about what feels the best, what works for you, and not be emotional about it because this is finance. There's really nothing emotional about finance. They're numbers. It's a business transaction.

That sounds harsh sometimes to people, but the more emotional you get about it, the harder it is to resolve these things and the more money you spend getting to an end result.

One of the things I really like to do with clients is move them out of the court system. I feel like that just elevates everybody's anxiety and stress.

I mean, the first time you have to appear, whether even by Zoom before a judge or show up in a courtroom before a judge and you've never experienced that, it doesn't matter what you're talking about, some people are just so anxious they can't even focus on what's going on.

So I like to talk to people about doing things like mediation, arbitration. I mean, both are really effective. They tend to keep emotions down. They let people talk through things more so that even if there is an emotional issue, people have sort of a space, a forum that they can have those conversations and work through them, and really sort of manage those levels of emotions so that we get through this in an efficient way.

Eric Blake: Hey everyone, it's Eric. Hope you're enjoying today's episode. I want to take just a quick moment to share a resource I think you'll find valuable.

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Now, back to the episode.

And that's the perfect lead-in because one of the great things about doing this podcast is so many great guests who I've learned so much from, people like you and Karen Covey and some of these people that have shared some of these other ways of thinking about divorce.

Because so many do hear that word divorce and immediately jump to conflict and litigation and the back and forth.

You just mentioned some of the other alternatives like mediation, and there's even collaborative divorce.

Carolyn Daly: Collaborative.

Eric Blake: But how do you, in your mind, determine which route is the best way to go?

Carolyn Daly: So I explain the difference between mediation and arbitration very simply. I think it's simple for people to understand.

I say, in mediation, you fully control the outcome. In arbitration, you fully control the process.

So what do I mean?

In mediation, if you don't get to a settlement, if the deal that is being put forth is not something you agree to, you don't settle. If it's not the deal you want, it's not the deal that works, you don't settle.

The other thing is if you are looking for a way that you know the two of you are probably not entirely going to get on the same page, but you want to know how that decision is going to be reached, go to arbitration because you can dictate who's making the decision and how that decision is being made.

Are you having a full trial? Are you just submitting an issue on the papers? Are you just having your lawyers write briefs and send in certifications and let the arbitrator make a decision?

You have so much more flexibility really doing both processes, but you have control over some aspect of it.

You have zero control in court. I mean, you really do. The lawyers and the judges are doing their thing, and you're getting a decision, and it's not a decision probably either of you likes.

I'm not saying you're both going to love what happens in mediation, but you're certainly going to love aspects of it for your own reasons. The same thing with the arbitration because you will at least feel like you had the opportunity to present your case, to be heard by someone who knows what they're doing in this area of law, and get a decision that is better for you.

So I do feel like those are better ways.

And how do I help people, to your point?

In mediation, I sort of have to know the parties are at least going to work cooperatively to start, and I often try to start them in mediation.

In New Jersey, we're a little unique. We can move with the same professional from mediation into arbitration.

Eric Blake: Ah, okay.

Carolyn Daly: You cannot do that in a lot of states. We have a specific way in which you can. We call it med-arb.

So I try to get them there. I try to get them starting to agree on certain things, to get 80% of the issues resolved, and the remaining 20%, I talk to my client and say, "Can we maybe convert this person to the decision-maker and let them decide the last 20% of the issues so you're done instead of abandoning the whole process and starting over?"

A lot of times that works really well because the parties have built rapport. They now know who this person is. They trust this process. They trust what's occurring. They trust this person to make a good decision.

Sometimes when you just start out in arbitration, you say to them, "Hey, this is the person we're going to have arbitrate." They haven't even met the person.

So I feel like it is a much better way, and sometimes you actually, more often than not frankly, mediate the whole case. You don't even need that person to arbitrate at the end.

It just feels better for clients, and I think their emotions and their anxiety and their stress and their desire to be conflict-based are managed a whole lot better.

Eric Blake: So I'd love to get your thoughts on when is the optimal time to make that decision, and when do you typically see people making that decision?

Do they come to you first and then you have to educate them on what these concepts actually mean? Or they say, "Okay, the divorce decision has unfortunately been made. We're going to get divorced."

Then saying, "Okay, do I talk to a retirement coach or do I talk to somebody who can help me filter through these different options?"

What's optimal, and where do you typically see people?

Carolyn Daly: So I really think it's optimal to start at the beginning, frankly. I don't think everybody's quite ready for that.

If they are not, I start talking about it very early in the process, all of these other ways to do it, and I talk to them about the reality of the courtroom.

I've been a litigator for 30 years. I've tried cases, which again, many people don't even try cases in New Jersey or anywhere in family law, but I've tried a number of cases over multiple weeks over 30 years.

I just finished a trial that the case started six years ago. He hired me just to try the case. It took two years to try the case. Just to try the case, and I don't even have a decision yet. That's not going to come until later this year, so it will have been almost three years since he hired me.

I could have arbitrated this in six months. These people could have been done, and they could have saved tens of thousands of dollars.

So I try to have those conversations early on, and I say to them, "As soon as we're at a point where we feel like we have marshaled the marital estate, we know what exists, and we have values, let's get into a mediation. Let's get into an arbitration. Let's decide which process feels better and works better and try to get you through."

I think one of the biggest things that elevates stress, concern, emotions, is delay.

I had a woman who came to see me years ago. She consulted with me. She ultimately decided to go a different route. Totally fine. That's your choice.

She came back to see me a year later. When she came to see me initially, she was thinking mediation. The two of them were cooperative. It could have been whatever it was.

A year later, she's talking about running him over in the driveway because nothing has gone on. Nothing has happened. They've been mired in the process.

I felt like a failure, and I had nothing to do with the case, but I felt like we'd failed. This couple that could have resolved their case is now at log heads. That's terrible.

Eric Blake: So from your perspective, we know there's the fear, the doubt, the uncertainty that comes with going through a divorce, and it's a big life transition.

But what would you say a successful divorce transition looks like? Not just legally and making hopefully the best decisions around how to proceed through the divorce process, but in terms of moving life forward once the divorce is complete.

Carolyn Daly: I think the best divorce process is that you have hired the right professionals, not just the lawyers, but other team members like you, financial planners, whether it's a divorce coach, whether it's a therapist, whatever it is.

So you've now moved through this process. You've gathered information. You've made some smart decisions. At the end of this process, you already have the team that is going to carry you to the next piece.

You probably need to have your lawyer working with you through that transition because I think we talked about this when we first talked. A lot of times there are things that still need to be divided or handled or wills that need to be changed.

Eric Blake: Right.

Carolyn Daly: I want to make sure that that all occurs.

I cannot tell you, I don't know if we talked about this, I had a case where they didn't do a QDRO. They didn't divide the retirement accounts. It was like eight years later this guy found me because I understand QDROs and I can handle it, and it hadn't been done.

He'd retired. The money had been rolled into a new account. He was taking distributions. The amount of work that had to be done with an accountant, it must have cost 20, 30, $40,000 to get it straightened out.

Eric Blake: Wow.

Carolyn Daly: If they had just done it in the six months to a year even after the divorce, $1,000, $1,500, it would've been done.

And if it's that far after, again, some little thing that people don't realize, on a federal level, divisions subject to a divorce are non-taxable. There's a code provision that provides for that, that says six years incident to a divorce.

If you're eight years later dividing a QDRO, you may now have a taxable event.

It's so important that at the end of this, you are actually making sure the divisions, the transitions, all of that has happened. You need to make sure your team is with you, making sure that happens.

Eric Blake: I think it's interesting that you brought that up, and maybe we don't need to beat it down any further, but it's very similar. I see that on the estate planning side as well.

You get the estate plan done, and you did this expensive living trust or whatever you might be doing, and you sign the documents and nothing else happens.

But it sounds similar to that on the divorce side.

I actually have an example of that where we had a client that her divorce was final a year and a half ago, and I wasn't part of that process. She came to us after it was complete.

Then all of a sudden she reached out and said, "Hey, I've got these 401s out there that I think were supposed to be mine."

I said, "Well, we can't really do anything until you reach out to your attorney and say, 'Hey, were there QDRO documents drawn up?'"

And it was, "Well, yeah, we drew them up, but we just never actually had them signed."

I'm like, "What?"

This is not a few hundred bucks. It's a few hundred thousand bucks. It's not inconsequential.

Carolyn Daly: Yeah. It's funny, I just did, there was an interesting case that was just decided in New Jersey about estate documents and otherwise.

I reached out to talk to the attorney because if the divorce document had been drafted differently, there could have been a different result.

It just talks to you about how important the actual language is and the transitions.

My estate partner and I just wrote an article, a blog about it because I said we need to tell people, you need to make sure these things are talking to each other. They have to talk to each other, and you need to make sure whatever your intent is, is clear and is carried out in the documents.

To your point, I can't tell you the number of times people say, and I'm sure you see this, life insurance, right?

Okay, "Husband will maintain life insurance for the benefit of the children in the event of his death to secure his child support obligation. That life insurance will be held in trust for the benefit of the children upon his death," period, end of story.

Nobody's drafted a trust. Oh my God.

Eric Blake: Yeah.

Carolyn Daly: And now you're not even here, and somebody's fighting about what that trust is supposed to do for your kids.

For goodness sakes, if you do nothing else, could you at least put in a HEMS trust? "Will be held in a HEMS trust," so at least we have some basic knowledge of what that's going to be used for.

Eric Blake: Well, so one more question before we wrap up. I want to make sure you get a chance to share all of your contact information and all that good stuff.

Maybe someone's listening. They've unfortunately made that decision that they're going to get divorced. Maybe they're feeling a little bit overwhelmed and stuck.

What is one small step that they could take today just to begin moving forward?

Carolyn Daly: Call and set a consultation with a lawyer. Get the information. Find out what your options are. What are you facing?

Because you can't make decisions in fear, and if you don't have the information, you can't make the decisions.

It's an hour. It costs you, I don't know, five, six, seven, whatever the amount of dollars is. It is a small investment so that you actually know what's coming, and you can make some decisions and be calmer.

Eric Blake: That's perfect.

And what's the best way listeners can connect with you, learn more about you and the work that you do?

Carolyn Daly: Sure. So you can find me on the website at cohenseglias.com.

You can find me on LinkedIn, Carolyn Daly.

And my email, you can find me by email, c-d-a-l-y@cohenseglias.com, or you can call my office, 973-474-5003.

Eric Blake: That is perfect, and we'll be sure to include all that in the show notes.

Carolyn, thank you so much for joining me. This has been an awesome conversation.

As always, thank you to the listeners for tuning in. That is it for today's episode.

For all the links and resources mentioned, you can visit thesimplyretirementpodcast.com, and until next time, please remember, retirement is not the end of the road. It's the start of a new journey.