[Today’s post is a guest post I requested from The Vigilante of iVigilante fame, a family law man who dropped an entire blog post worth of knowledge in a comment on my post about derailing early retirement, which happened to include an ugly topic: divorce. I liked his style and depth of knowledge, and he clearly likes to write.
I was actually surprised to see a study that showed a relatively low divorce rate among physicians. I know a group of five docs in which four have been divorced, and I don’t think that’s at all uncommon.
As you might have seen, we started tracking our expenses a little more than a year ago. Many of my blogging friends do the same. It occurred to me that having a detailed ledger of every dollar spent could be quite useful for someone in the unfortunate position of facing a divorce, particularly for a high earner, but low spender.
Was there any merit to my logic? Wait, we’re talking law, not logic. What was I thinking? Let’s see what The Vigilante (Twitter handle @ivigilanteblog) has to say.]
“The Court finds no error in the support calculation. The Order remains as entered by the conference officer. Dr. Anderson, I’d recommend you adjust your spending if this is a problem.”
The words of the judge stung. As if the divorce wasn’t bad enough, here was the court just completely ignoring the realities of her finances. Dr. Anderson and her soon-to-be ex-husband had never, ever spent more than $80,000 per year – they discovered Physician on FIRE while she was in med school, and they wisely saved for financial independence and early retirement from graduation on.
Now she owed him more per month than either of them had ever spent alone, so he could “maintain his standard of living” in the divorce. Why? How was this fair? Where’s the justice?!?
Her husband was a public servant grossing about $50,000 per year. She made $250,000 per year. In the divorce, assets were split down the middle: because he had less to his name, he took the house and about $200,000 of her retirement. Under the support laws, he was also entitled to spousal support to maintain a standard of living while the divorce was finalized. He wouldn’t consent to the divorce – his attorney advised him not to consent because he could collect spousal support until the two-year separation period lapsed, at which time Dr. Anderson could get the divorce without his consent. (Aren’t attorneys just the worst?) [PoF: Yes.]
The spousal support calculation – which took the difference between her net income and his, multiplied it by 40%,* and spit out the amount she had to pay until the divorce would be finalized in about two years – meant she owed her former husband $4,655.28 per month for the next 23 months. For those of you who forgot your calculators, that’s $107,071.44!
Dr. Anderson presented her case well. She had detailed records of finances for the duration of their marriage. All 10 years since med school, meticulously recorded, graphed, and thoroughly explained to the court. If the goal of spousal support was to maintain a standard of living, why would she pay more per month than either of the two had ever spent alone? He would now have his own net income – which was already greater than his solo spending and only about 1/5 lower than their combined spending – plus her support of $4,655.28 per month to “maintain his standard of living.
The court ignored it all.
I’m a divorce attorney. I have seen this scenario play out dozens of times. There are two variations to the same problem that plagues the obligors in support matters all over the country: The parties always think the law will customize itself to their needs.
The two variations are simple and seem logical on their face. One the one hand, you have low-income earners (or high spenders) who come to the court requesting an adjustment to their spousal or child support because they “can’t afford it.” They have rent, a car payment, and utility bills to take care of – how can they afford to pay their ex on top of that?
On the other (far less common) hand, you have divorced couples who did not spend a lot of money compared to their high-incomes. These high earners, like Dr. Anderson, wish they could just pay support in an amount that actually reflected the standard of living that, by getting married, they agreed to help the other sustain in the event of divorce.
There is, unfortunately, no exception in the law for financial independence blog-readers.**
Assumptions are the problem.
Assuming that the parties spent nearly all they earned, the spousal support calculation might make sense. Dr. Anderson and her high-income would suddenly disappear from her husband’s life, and he might be stranded with a high car payment, mortgage payment, bills, etc., and need time to refinance/sell/downsize various investments, or replace items like furniture that went with Dr. Anderson. The spousal support would help him get back on his feet, ensuring that both parties to the marriage could get on with their lives.
But in a financial independence setting, Dr. Anderson is right to question the need for this type of support. Her husband doesn’t need help getting back on his feet; on the contrary, he has more assets than he did during the marriage and he has an income sufficient to provide for pretty much the same lifestyle without her help. What can she do?
Frankly, she has two options, and neither are easy.
First, Dr. Anderson could consider appealing the decision of the court, making the case to her state’s court of appeals that the law was applied incorrectly and/or is simply wrong and should be amended to account for financial independence-seekers. This might work, but the road is long, hard, expensive, and (at least in my opinion based on admittedly limited knowledge of where support laws will go in the future – I’m a lawyer, not a fortune-teller) incredibly unlikely to result in any change for her.
Second, Dr. Anderson can invent a time machine.
The Chase Ink Business Cash offers 5% back on up to $25,000 spent on cell and landline service, internet, cable TV, and at office supply stores. 2% back at gas stations & 1% back on all else. No annual fee.
Enter the Prenuptial Agreement
She needs a prenup. I’ve been saying it a lot lately, but it’s because I so very strongly believe it: prenuptial agreements are absolutely crucial for the FIRE community.
Not the type of prenup that says: “If we divorce, you get nothing, and by the way we have sex at least twice per week (three times where a week contains a federal holiday),” but, rather, the type of prenup that sets reasonable boundaries for things like spousal support, alimony, and the division of assets such that both parties can move on relatively unharmed in the event that they don’t live happily ever after.
Dr. Anderson would have benefitted tremendously from a prenuptial agreement that superseded her state’s one-size-fits-all support laws. She and her husband could have agreed to anything: a reasonable support payment based on historical spending, an alimony payment based on helping her husband reach some minimum passive income goal and nothing more, or some particular dollar amount adjusted for inflation over the years, for example, rather than relying on state law to determine what would happen.
Dr. Anderson could have ended up paying a much more reasonable amount – or avoiding spousal support altogether – had she negotiated an agreement based on her circumstances in advance. Instead, she’s making a heartbreaking court appearance to challenge well-established law that some scumbag divorce attorney brought to her husband’s attention. And wishing she had a DeLorean and a flux capacitor.
* This is the actual support calculation in Pennsylvania to determine the “guideline amount” of support where there are no children involved. With children, it’s 30%. There is some room for adjustment of the guideline amount based on child support, other support obligations, and factors such as health insurance provided by one party to the other. There is also room for deviation from the guideline amount based on many factors like a party’s other household income, substantial assets, or just plain fairness. But generally, the guideline amount – plus or minus 10-20% – is used. So while it’s not inevitable, this is an extremely realistic scenario!
** Well, in Pennsylvania. I cannot speak to the rest of the country, but I sincerely doubt that the FIRE crowd has had a substantial impact on any state’s laws. It’s the problem with being so damn frugal; our discount lobbyists are the worst.
*** That being said, early Tony Stark, circa the first Iron Man movie, is kind of a personal hero of mine.
WCI is having a sale on all courses with a free bonus course included with your paid tuition this week!
In honor of Financial Literacy Week, if you buy either the Fire Your Financial Advisor or the 2020 Continuing Financial Education course, you will not only receive 10% off, but also receive the Physician Wellness and Financial Literacy Conference - Park City course for free.
[PoF: Interesting, isn’t it? Expect the law to allow false assumptions to trump actual spending records. The best answer is to stay happily married for ever after, but as The Vigilante and many of you know, that isn’t always possible.
I’ll be interested to hear your comments on this insightful guest post. Don’t forget to thank The Vigilante for his contribution!
p.s. I made some enhancements to the functionality of the comments. You can now subscribe to receive replies to your comment only, you have five minutes to edit comments if a typo slips in, and you’ve got the ability to use bold, italics, and links in your comments. Bonus points if you use all three.]