Divorce is a tricky, difficult subject, and dealing with the financial distress that divorce brings only makes it more difficult. In this interview, we sat down with family law attorney, Anne Fokstuen, who is well versed in the legalities and finances of divorce. With a background in both finance and law, she provides a sophisticated lens on the best financial practices when dealing with something as heavy as divorce. Listen in to learn more about the best routes to navigate divorce.
Anne’s Background 0:09:58
The Emotional and Financial Cost of Divorce 0:11:17
Myths of the Divorce Process 0:05:33
Modern Divorce Options 0:18:08
Pre-Planning for Divorce 0:21:58
Planning for Divorce without Knowledge of Shared Finances 0:23:55
The Importance of Mediation 0:27:20
Best and Worst Divorce Cases 0:30:30
Resources to Prepare for Divorce 0:35:05
Jonathan DeYoe: I’m really excited today. As you saw in the last episode, Scott and I are going to be answering some of the common client questions we get. We are coming out of the end of the pandemic and we have actually internally run into a few of the couples we serve that are going through a divorce. We wanted to bring on somebody, Anne Fokstuen, who’s going to talk to us and answer some questions we have about the divorce process. We are really excited to do this, bring this content to folks on YouTube and folks that are reading our blog. Scott, do you want to ask the first question?
Scott Jacobs: Anne, give us a little bit of your background. What brought you to become a family law attorney? What brought you to this space?
Anne Fokstuen: I have always been fascinated by people and their problems. As a child, I would read my mother’s magazines and there was a monthly feature called “Can this marriage be saved?” and I thought that was really fascinating. I have a slightly different background than most family law attorneys because after college I got an MBA and I worked on Wall Street. So I have about seven years of financial analysis, balance sheets, RSUs (Restricted Stock Units), stock option background. Then I decided I didn’t just want to make rich people richer, I wanted to have more of a human angle. I went back to school, got a law degree, and found that my interest in families and people with problems and my background in finance was a really good fit for family law.
Scott Jacobs: So it sounds like when they hire you, they’re not just getting a family law attorney in the traditional sense, but someone who’s come from the finance and the money side who has paired these two expertises together to really customize some better outcomes than maybe somebody else.
The Emotional and Financial Cost of Divorce
Let’s just jump right in then. What do you think are one or two of the biggest mistakes people make when planning for divorce?
Anne Fokstuen: They don’t think about the cost of running two households and I think they underestimate the emotional costs. And, if I can add a third, not being prepared. In a lot of marriages, one person ends up paying all the bills, handling all the finances, and they have one financial advisor. And the person who has been on the outs of all the information is sitting there really scared and not knowing what to do. For both, you are supposed to maintain the marital amount of living, but that’s very hard if you have to take the same amount of money and put it in two houses. So there has to be adjustments.
Scott Jacobs: It sounds like what you’re saying is one spouse, whoever it might be, who has not been handling any of the money for years has now been given this paradigm where they have to learn how to manage money, look after money, expenses, bills, assets, etcetera, right?
Anne Fokstuen: Yes. And most of the time a financial advisor will not be able to work with divorcing couples. In the end, each will have to have their own financial advisor. And if you have someone who is not really forthcoming, there is a lot of distrust, fear, and lack of information.
Jonathan DeYoe: I’m curious, do you think that’s always the case? Because we’ve had I think four couples that I’ve worked with that have gone through a divorce and after the divorce, in three out of the four cases both parties remained clients. I think part of that has to do with the fact that probably two months after one of their divorces I actually saw both of them out on a double date together. There are people out there that get divorced and it’s not that contentious and they separate things in a lovely way and end up moving forward happily.
Anne Fokstuen: That gives us hope. I think having the right financial advisor probably really helps. But I have a client who was told that I can’t be the financial advisor for both of them and that they were going to each have to find their own financial advisor.
Jonathan DeYoe: Huh. Interesting.
Anne Fokstuen: But that could just be the specific financial advisor in that case. If there’s trust in sharing, the process becomes much less painful, and much less fraught and difficult.
Jonathan DeYoe: When we’ve seen it internally, we try to sit people down, have them be very honest with each other, and just recognize what’s happening.
The thing you said that was most interesting to me is the cost of having two households. We explain to them “Neither one of you is going to be happy with the financial outcome. You are both going to have to make sacrifices. So, let’s do this in the most amicable way possible.” I think that the reality of it is that it’s just a tough place to be.
Anne Fokstuen: It is a difficult place to be. Very few people have two plus houses where each can take one and live there. And then you have to figure out who’s going to get the house and the person that gets the house may end up having less of other retirement assets. Whether that’s a good decision depends to some degree on where they are in their earnings cycle, whether they plan to retire in 10 years or maybe they want to keep working for 25 more years.
Myths of the Divorce Process
Scott Jacobs: Sure. So let’s go in a different direction for a second. Our industry has lots of different myths, sort of like versions of the way things are supposed to be or not supposed to be. What do you think are some of the myths out there about the divorce process that people really believe in a certain case and it’s just not really how it is?
Anne Fokstuen: Well, one of them is that everyone thinks “I am entitled to live at the marital standard of living.” It’s just math, it's not possible. If you have $400,000 as the total family budget and you divide households, you are probably going to have around $200,000. It’s just not going to go that far. You are going to have two utility bills, two sets of phone plans, different cables, and the list goes on and on and on.
Scott Jacobs: So, the idea is that you’re not entitled to the standard of living you think you might be?
Anne Fokstuen: You’re not going to be able to have the same standard of living most likely that you had while married. It’s just not possible.
Jonathan DeYoe: The one exception to that would be the people that are very wealthy. We just watched Bill Gates go through divorce and he is going to have the same standard of living before and after. It’s not going to affect him at all. The lower you go down on the socioeconomic scale, the more difficult divorce becomes for a couple. If you’re making $60,000 and it’s now $30,000 and $30,000, just paying your rent can be a challenge.
Anne Fokstuen: You could end up having to sell the house because neither can afford to stay in the house. So in some ways, divorce is a bit like a luxury. The more you have planned ahead, the more you are financially together, the more savings you have, the easier the process will be. The easier it will be to go out together on a double date and not be really angry and bitter.
Jonathan DeYoe: I don’t think that’s why we pitch financial planning- so you can divorce more easily, but hey, it’s an added bonus!
Anne Fokstuen: It’s a good byproduct.
Modern Divorce Options
Jonathan DeYoe: What are some of the options that are different in 2021 for the process of divorce that didn’t exist 10 or 20 years ago?
Anne Fokstuen: I think there is an increased realization that mediation or collaboration is the way to go. Even 10 years ago it was pretty unusual to want to do mediation. Collaborative was something that people knew about but it wasn’t all that commonly understood. More and more people call me up and they say, “We want to mediate but we each need a lawyer. Can you help with that?” And then we talk about the client’s goals and if we think there is a good fit with how I work with my clients and they want to hire me then we work it out. That typically results in less legal fees, fewer emotions, less drama and you can keep your dignity and most of your money.
Jonathan DeYoe: Could you just define those two? The mediated divorce and the collaborated divorce?
Anne Fokstuen: The mediated divorce is when a couple hires a mediator and a mediator is a neutral person who is skilled at helping parties come to agreements. The process is that somebody has to file a divorce petition, there’s a response, both parties have to do their financial disclosures. Instead of each having their own attorney battle it out in court, the mediator takes the information, tries to have an agreement with the parties, and most often actually does reach an agreement. The lawyers end up being involved in the background to give advice and make sure their client thinks carefully about their options, what's best, what are the potential consequences. The mediator is neutral, so they cannot tell mom, for instance, “You need to get the house and X, Y, Z.” The lawyer can say, “If you want to have the house, this is what you’d probably have to do. Think about it.”
In the collaborative approach, both parties hire a lawyer, the lawyers commit to not going to court. This means that the collaborative process, which typically involves having various experts work altogether, is more expensive than mediation and can have really great results. The lawyers have an incentive to work it out because they are going to get paid to do the process and they have to walk away if the process fails.
Pre-Planning for Divorce
Scott Jacobs: One of the things we want to ask you is, is there a best set of practices for an individual who is in a marriage where it looks like things are going to be ending? Like for a year, you may want to start getting your ducks in a row? And I just want to throw this out there that you have two alumni from Divorce University on this call. Jonathan and I both have our own personal experiences, but I am curious if there are any best practices that we could suggest when we hear buzz words or buzz comments that might come up in conversation?
Anne Fokstuen: I often am getting calls from someone who is thinking about getting a divorce and wants to plan. One thing you should do is call a family law attorney and talk to them about it. What I tell family clients and potential clients is that information is key.
I ask whether they know where the money is invested, what bank accounts, what cars, how the house is titled, whether there is any down payment that either party could claim, was it a gift from their parents? Often, parents will put money in, but if there isn’t a gift letter, and so, later on, the claim could be, “No, that was just my child and I want that money back.” I give my potential clients a list of things that they need to gather. That involves tax returns, bank statements, retirement account statements, current earnings, anything about other assets, and ownership of cars and houses.
Scott Jacobs: Great. Jonathan, anything to add?
Planning for Divorce without Knowledge of Shared Finances
Jonathan DeYoe: You talked about this earlier. You have two partners that come with different financial backgrounds, different financial abilities. What do you advise a partner who says, “I don’t know where their financial statements are. I don’t know how the assets are managed. I don’t know who the financial advisor is.” What do you advise that partner to do?
Anne Fokstuen: Usually the statements are in the house. Monthly or quarterly statements will come in. I advise them to keep an eye on that. I encourage them to go talk to a potential financial advisor and get an idea of what they need in order to be comfortable. It’s reasonable to ask them to come to the next meeting with the financial advisor to be well informed about what’s going on. Sometimes you’re going to have someone who is very uninformative and you just have to gather the information you have. In that case, you’re probably not going to go through mediation because if they are not willing to share, that’s usually a bad sign.
The lawyers can get all the documentation with subpoenas, documentation requests. The lawyers can get everything. But, sometimes tax returns have really useful information and if the parties are filing jointly, each will be signing the return. The return can be really helpful in figuring out which assets are owned, interest income, dividend income, property taxes, and all of those things. All else failing? Start with that, and see what statements come in.
Jonathan DeYoe: I want to pull on this a bit more since I have been through a divorce and second marriages have a higher probability of failure than first marriages. My wife and I talk about our finances, and we have invested in a variety of things that don’t show up on statements, but all that stuff shows up on our tax return. She would have to have that tax return and bring that to an attorney if anything was to ever happen between us. Is that a good summary?
Anne Fokstuen: Right. That would be the right advice. If the love is gone, then the incentive to really share goes down. It doesn’t necessarily go away because anyone who has ever hired a lawyer has been told there are really dire consequences for anyone who hides assets. You could end up losing the entire asset, or half the asset, and have to pay your spouse's legal fees.
I had a client once who tried to do that before I was hired. That worked against him in the entire divorce process. The judge was like, “Well you hid such and such and it was only discovered quite accidentally, so basically I am not going to believe anything you say.”
Jonathan DeYoe: Wow. That’s interesting. My wife and I have kids and every time we have clients that go through divorce with kids, we remind them, “You need to make this as amicable as possible. We realize it’s going to be a challenge. We realize it’s going to be very difficult. We realize all the emotions involved. We realize there’s distrust; all of this stuff. But you have kids. There are other lives you have a huge effect on.” How do you protect those kids? In your experience, what’s the best way to really shield them from those challenges?
The Importance of Mediation
Anne Fokstuen: I would suggest trying to mediate at least the custody. Clients sometimes think that saying nasty things and saying nasty accusations is a way to win in court. It’s a way to lose. I think it’s best to go and hire a psychologist, or hire two psychologists and try to set up some ground rules: how are you going to tell the kids? When are you going to tell the kids? Who’s going to tell the kids? The kids are collateral damage. Some clients think of them as ammunition in war, whereas they really should be protected. You need to try to protect the kids from the process.
More and more, I’m finding that parents are quite mindful of that. It’s possible even if you don’t want to mediate all of the divorce, you may want to mediate the custody portion. The only time you wouldn’t want to do that is if someone is mentally ill, or an alcoholic, or a drug addict, in which case 50/50 would not be a good thing.
Best and Worst Divorce Cases
Scott Jacobs: Anne, could you talk about the worst cases you’ve seen? And then to brighten up as we wrap up our discussion, what are the best outcomes you’ve really seen in the divorce process?
Anne Fokstuen: There was a case I got involved in where it wrapped up eventually. The parties spent approximately $300,000 on legal fees and they had owned two houses in San Francisco. At the end of the divorce neither parent could afford to own a house in San Francisco. One parent moved out of state, one parent ended up renting. The kids' world ended up being so damaged. One child went with one parent, one child went with the other parent. It was so sad. It finished; the bleeding stopped. I was able to calm things down, but they could have had a pretty good life. They could have co-parented, but they didn’t.
The best possible outcome… let’s see. I had a case where the mother really wanted to stay in the house, but she couldn’t really afford it. We worked out some solution that the husband agreed to that let him have the kids when he wanted. He had a very busy executive life; he really couldn’t do 50/50 because he was gone so much, but he got lots of vacations. She got to keep the house; they are getting along fabulously. When I first met her, she was in my office crying because she had discovered another infidelity. But she was calm and cool and picked a lawyer who had a strategy and the husband had a strategy and at some point they had a mediator involved, and they got along really well.
Jonathan DeYoe: That’s really interesting because in that circumstance she actually got more financial resources because she was able to see the scheduling snafu of her husband. We talk about how the conversation up to the courtroom is a negotiation and all things are on the table. If people can see that all things are on the table, then everyone can get some of what they want and have a much better outcome. I love that story; that’s a great story, Anne.
Anne Fokstuen: And the client is really, really happy. You just have to figure out how to make it work and even if the parties have been bitterly litigating, it’s possible to chill the temperature and work something out. I had a case where I was the third lawyer. Over $100,000 had been spent by each parent fighting about custody. We got them through mediation. They ended up with 50/50, which is what it should be because they are good parents. And they worked out their financial issues. So it’s possible that if things look really dire, to turn things around if both parties are willing and open to it.
Resources to Prepare for Divorce
Scott Jacobs: Anne, the last question is what are some websites, resources, people, or books that you recommend to someone that is listening to this right now and thinking about divorce?
Anne Fokstuen: There are a lot of different divorce handbooks and websites. The California Court actually has an excellent website that explains the process and even provides the forms, which is a really good way to start. There are books like The Mindful Divorce, The Good Divorce. Many of the books written by psychologists and therapists are excellent.
For anyone thinking about getting a divorce, it’s a good thing to talk to a lawyer, or even a couple lawyers to figure out who you are comfortable with. Most lawyers will happily spend some time and what you say is confidential. There’s no real risk except it is painful and hurtful to sit down and talk about marital problems. Knowledge is power.
Scott Jacobs: If somebody wanted to seek you out or find information about you, where could they go?
Anne Fokstuen: My website is probably the best place. The Cal Bar has information about all the lawyers. Most people who hire me, hire me because one of their friends or colleagues used me, or another lawyer recommended me. A good idea is to find people who have gone through the process and find out who they used. One time I had someone come to me because his friend was opposite me in court and said, “You should hire her because I didn’t.”
Scott Jacobs: Awesome, thank you. We wanted to thank you for spending time with us because we know you are busy and you are important. You’ve been a real value add for us and for those listening.
Anne Fokstuen: I enjoyed speaking with you.
Jonathan DeYoe: Thanks, Anne!
If you or someone is thinking about divorce, reach out to a potential family law attorney to talk about the next steps you should be taking. Learn more about how to improve your relationship with money at our website https://mindful.money/.