Divorce and its financial complications
Recent global statistics on divorce rates per 1,000 people list Bermuda as one of the highest in the world, down only six places from number No 1 Russia and one digit away from the United States.
Bermuda is also now the most expensive country in the world according to the Britain’s The Telegraph.
The Bermuda Digest of Statistics 2013 indicate that the largest percentage of divorces in Bermuda incur with individuals over 40. Some olders among that number are close to, or retired.
Marriage counsellors still cite money problems as the most common divorce reason. Gee, could there be any connection between these three facts above?
So, what happens in divorce, from a financial perspective?
The untangling of two lives can be both brutally difficult and painful financially. A common problem for here is the number of Bermudians, permanent residents, and outsiders marrying into ordinary Bermuda families with a variety of astonishingly complex situations.
Familial living arrangements in two-family or more homes, mortgage titling and family loans where parents and relatives have encumbered equity in the family home for children make division of property and other assets complicated, not easily liquidated or reconveyed.
A quick review of just a few of the resolved divorce cases in the Bermuda Supreme Court highlights this complexity. Yep, Bermuda litigated cases, not just divorce, are public and published. Google search!
Divorce at any age is tough, but time can allow some financial recovery when the parties are young. For older individuals, particularly women who have limited resources, the disparity in financial income/asset statistics are well documented. Their working world income (and pensions) on average are less than men’s. Women who chose marginal part-time or flexible jobs to intersperse with child rearing, now much older pay the price in today’s marketplace where for many, their non-current skills present real difficulties in future gainful employment.
Realistically, both genders close to or in retirement have few earnings years left to catch up financially after a divorce.
Divorce can be expensive. The mere act may not encourage much, if any, mutual financial agreement between the two parties without the intercession of qualified legal assistance. The great recession did change this perception in the US, for instance, with an average 50 per cent of divorces now are performed in a do-it-yourself manner.
However, the DIY route in Bermuda can be a minefield when divorce is combined with final untangling of joint financial lives intertwined with property, children custody, disparate incomes and equitable parity negotiations. Professional legal assistance is required. No, this is not a promotion for divorce attorneys; it is a recognised statistic.
But, what if the parties simply cannot afford it? What can they do, particularly if they must continue to share lodgings?
Here are some practical considerations. Note, I said consider (not your personal advice, please read my disclosure at end of article).
You can consider formally setting up a separation agreement that is private and non-binding but does layout how you both, as the couple, would like to uncouple your assets. Each of you should have your own independent counsel. Utilising a family law attorney in Bermuda is a requisite to be sure that the separation of assets does not trigger conveyance tax, stamp duty or other tax and legal surprises.
Any individual who has dual-citizenship or holds a green card with the US has to be extremely careful in separating, gifting, or combining assets or income that may trigger US tax consequences, as well.
Two can live cheaper than one is a much touted mantra. This is true, making even the decision to separate assets acquired over a lifetime so difficult.
Some other, but not all, items to consider. Separate what accounts you can as best you can — carefully, methodically, legally. Be aware at all times of the ramifications of these changes, and that some assets and titling may not be changed without adverse consequences.
When it come to contributing to the family household, divvy up the household expenses so that each partner contributes a fair share.
Keep in mind also, you and your partner may have to compromise on some items, such as health coverage carried, for pure economic survival. Document your results and all transactions going forward.
When it comes to banking, each should have accounts in their own name. Consider keeping the joint account only for bill payment, although even that is a bad idea if one partner has uncontrolled spending habits.
Credit cards should be separate as well. Each of you is only responsible for your spending debt.
With health insurance, if both are on one partner’s policy the other partner must reimburse.
Regarding liabilities, are all loans jointly signed? Generally, this is the case with a home mortgage if the home is jointly owned. There is little recourse here if funding is low. Each partner must carry their share. With other loans consider having them renegotiated so that the person who borrowed is solely responsible for the debt, ie credit cards.
Individual cost of school fees, children support and the like should be defined if we assume that retirees have taken on this responsibility to start with.
Changeovers of beneficiaries
Pensions are earned individually through job employment, generally. In complete marital breakdowns, pension beneficiaries can be changed to other individuals, or in the case of children in care of a separate guardian; also, keep in mind that one spouse may be legally entitled to a portion of the other spouse’s pension.
Life insurance policies can be organised in the same manner.
When it comes to estates and wills, every individual should have a separate will, while the terms and conditions should reflect the decisions of the originator of the will.
Living arrangements are probably the toughest component of all, how do you cohabit with someone you no longer wish to be with? Solutions that I have seen, heard or read about are the following:
• Two family unit, one partner in each.
• A studio unit added on or converted for one partner.
• Home divided into two, almost literally, down the middle.
• Living hours separate. This worked when one partner worked the night shift, and the other days.
• One partner moves to an apartment — this may prove too expensive a solution.
• One partner moves away to a lower-cost country. The homestead, if owned jointly, is sold, and finances divvied up.
• Two houses side by side, one for each partner — but this case was unique as there was more than adequate financial resources. They still cared about each other, but simply could not live together.
Everything changes, but somehow, everything almost stays the same. There is never an easy solution to these difficult family situations.
Feedback from readers? Please write to me.
Disclosure: This article is general information only. It cannot be used for your personal financial planning. I am not your attorney adviser, financial planner, tax practitioner, insurance agent, or investment / estate adviser. Even with very limited resources, at least, obtain as assessment of your current situation.
Special thanks to Divorce Attorney Jackie MacLellan, MacLellan & Associates, barristers & attorneys, notary public, Hamilton, Bermuda, for her kind assistance and clarification on several perspectives.
• Overview of Divorce Law in Bermuda, Honor Desmond-Tetlow, 2013 May 13: MJM Ltd http://bermudalawblog.bm/2013/05/overview-of-divorce-law-in-bermuda/
• Family law in Bermuda: overview: Practical Law Global Guide 2015/2016, Adam Richards and Rachael Barritt, Marshall Diel & Myers Limited, http://us.practicallaw.com/7-571-2430
• Cheapest and most expensive places to live (The Telegraph newspaper): http://www.telegraph.co.uk/travel/maps-and-graphics/mapped-the-cheapest-and-most-expensive-countries-to-live-in/
Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: firstname.lastname@example.org
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