The Financial Cost of Post-Separation Conflict
The financial cost to families of long-term, post-separation conflict can be devastating and often directly impacts three generations. Some people never recover from the debt that they incur and may find themselves having to work well beyond their planned retirement date.
Financial ruin is not the norm, however. Most people who separate are able to resolve parenting, property and support issues either on their own or with guidance from mental health professionals, lawyers, mediators and financial advisers. They are well aware that the same income that has historically been used to support only one household will now be supporting two. They are able to focus on the big picture and agree to terms that are fair to everyone in the family, recognizing that it is preferable to settle for B+ or B- outcomes rather than hold out for A+ outcomes if doing so means avoiding long, drawn-out negotiations and keeping their hard-earned money in the family.
It can be challenging to negotiate agreements about where children will live, how assets and debts will be divided and how the family income will be shared (if at all) immediately after the decision to separate has been made. People often have very different and legitimate views about how specific legal issues should be addressed. It can take time to negotiate a fair and appropriate resolution of some of the more challenging legal issues, such as parenting arrangements and support, particularly if the separation is fresh and people haven't yet processed their grief. It’s important for people to have time to understand all of their options and the short-term and long-term impact of each. Settlement decisions should only be made when people have all of the information that they need to make good decisions and when they are emotionally ready to commit to a settlement. Having access to professionals who can offer support, advice and creative ideas for settlement is essential at a time of such vulnerability. The associated professional fees are valuable and necessary.
There is a category of separated people who are referred to in family case law as “frequent flyers” because they spend so much time in court and use such a high proportion of judicial and community resources such as police, child protection agencies, parenting assessors and hospitals. The majority of frequent flyers fight about parenting arrangements and they have rigid and unwavering views about what is “right” and “fair”. People who are embroiled in this type of intense conflict lose sight of both the financial cost to the family and the emotional impact that the conflict has on their children. They find themselves sending and receiving literally hundreds of letters with accusations, blame, criticism, ultimatums and one-sided settlement proposals. They tend to be unable to see perspectives which are different from their own. That makes settlement difficult at best, but more commonly, impossible. As a result, they spend the bulk of their time preparing for and attending court. Decisions about their children are made by judges, arbitrators and parenting coordinators. Even a final order after a trial may not put an end to the conflict. Instead, appeals are argued, the terms of orders are debated and breached, enforcement proceedings are brought and variation applications are launched.
Mental health professionals, lawyers, accountants, actuaries and business valuators all charge fees based on hourly rates. With extremely limited exceptions, professional fees are paid in after-tax dollars, i.e.- from take-home pay. This is how quickly professional fees accumulate:
HOURLY RATE 15 MINUTES 1 HOUR 4 HOURS 8 HOURS
$250 + HST $70.63 $282.50 $1,130 $2,260
$350 + HST $84.75 $395.50 $1,582 $3,164
$450 + HST $113.00 $452.00 $1,808 $3,616
$600 + HST $127.13 $508.50 $2,034 $4,068
It’s easy to see how people can spend tens of thousands or even hundreds of thousands of dollars in professional fees to “win” if they: (1) make decisions based on emotions; (2) are unaware of mounting professional fees; or (3) choose to ignore the financial cost of the conflict. It is not unheard of for professional fees in custody cases to reach $100,000, $300,000 or even $600,000.
How do people pay professional fees of this magnitude? First, they spend their own income and savings, including money that they may have set aside for emergencies or their children’s education. Some people even cash in retirement savings, which triggers an income tax liability. With their savings depleted, they begin to incur personal debt (increased mortgage, lines of credit and credit cards), all of which attracts monthly interest charges. When their credit is exhausted, they borrow money from friends and family. It is not uncommon for grandparents to fund custody litigation and deplete their own retirement savings or mortgage their previously debt-free home.
The impact of all of the accumulated debt, coupled with the stress of the conflict, can be enormous. Many people find themselves on long-term disability because they are unable to function at work. Others find themselves having to file for bankruptcy.
How can you avoid the slippery slope of escalating professional fees and keep your hard-earned dollars in your family?
- Educate yourself about the legal issues that are relevant to your family. Both the Department of Justice and the Attorney General for Ontario have web sites with valuable information about separation, divorce, federal and provincial legislation, parenting arrangements, child support, spousal support, property issues and dispute resolution processes;
- inform yourself about all of the dispute resolution processes that are available in your community (mediation, collaborative family law, arbitration, parenting coordination) and research the specific professionals who work in each field;
- ask every professional you consult with for an estimate of their fees and specifically, what the fees cover. Ask to be billed regularly for services so that you are aware of the costs that you are incurring and are able to make informed decisions about future steps;
- when you schedule meetings with professionals, be prepared with relevant information and a bring with you a written list of your questions;
- request an opinion about all of the possible outcomes in your specific case and how you may best achieve your goals. Find out about the cost of pursuing specific outcomes through the various dispute resolution processes as well as how long each process takes from beginning to end. Equally importantly, find out what could happen if you pursue a particular outcome and your are unsuccessful. You should know if you could find yourself in a worse position or end up paying not only your own professional fees but also your former partner’s professional fees;
- as early as possible, look at your take-home income, your savings and your credit limit. Create a budget and share it with the professionals you retain; and
- before you start your negotiation or take a significant and potentially costly step in litigation with no certainty about outcome, think about your other short-term and long-term financial priorities like paying off your mortgage, completing house repairs, enrolling your children in extra-curricular activities, saving for your children's post-secondary education, taking a family vacation, and having a budget for entertainment and recreation expenses.
In summary, you have more ability than you think to control the financial cost of your separation.