FIDUCIARY FEMALE-OWNED FEE-ONLY

Blockchain & Banking – Can They Solve the Divorce Dilemma?

Without irony, I believe the Divorce Dilemma may be solvable by both blockchain and banking solutions.

The problem we’re trying to solve:  Slowing, stopping and reversing the well documented poverty levels of divorced women and changing the outcomes for women who are wealthy during marriage and at risk for becoming poor through the divorce process.  https://www.ssa.gov/retirementprospectsdivorcedwomen

Getting money back across the aisle in divorce must happen to achieve more equitable outcomes without resorting to heavy depletion of the marital estate by attorneys and other hangers on.

How does this depletion start?  It can start as early as the marriage does if women do not participate in the finances of the family.  It can start when women agree to staying out of the workforce to care for others (i.e. children, elders) without calculating the potentially lifelong financial injury, the severity of which depends on how long they are out of the workforce.  Diminished skills and confidence contribute to a very tough re-entry, if they ever do re-enter.  With long lifespans, it’s increasingly likely they will be expected to work at advanced ages not previously accepted.

Many of the decisions women make that place them in a lower position financially are made benignly and with good intent by all family members.  They also tend to be incremental over the years and so the damage may not be noticed until the woman is facing divorce in middle age with little ability to earn income and little knowledge or access to family finances.  I think blockchain may enable the access.

A typical experience in divorce today is that after one of the parties decides, often privately, that they wish to divorce, they start moving money without the other party’s knowledge. When the divorce is announced, one or both parties lawyers up.  With trust between the parties challenged, both parties attempt to define the marital estate and the income of the family.  It is often the case that the woman has to fight to both understand the income and assets of the family at the same time she may be pressured to start negotiating based on her need as defined in the state in which she lives.  

Women are punished when they negotiate aggressively on their own behalf.  The people (judges, attorneys and soon-to-be ex-spouses) deciding their fate are often male and lacking in personal finance expertise.

Even highly accomplished women, like billionaire Sheila Johnson, have to overcome culturally ingrained ideas about their financial contribution to the marriage at the time of divorce. Importantly, the many and significant financial and other societal contributions available to and then executed by Ms. Johnson are in part due to an equitable settlement at the time of her divorce.  

Disrupting divorce means disrupting the $50 billion divorce industry.

What role might blockchain play in solving the Divorce Dilemma?  The hope is that the same way blockchain seeks to automate the audit process through triple entry, divorcing parties can rely on one, true record of the assets and income that make up the marital estate they will divide, thus enabling warring parties who do not fully trust each other to start negotiating once the estate is defined.

Perhaps blockchain technology is strong enough to use on its own without an intermediary like an attorney. 

Today, many resources are used up to simply try to obtain documentation so the parties can start negotiating.  My vision includes using blockchain to confirm the income and asset values are correct, complete and current and can be relied upon in negotiations.  Presumably, all of the records are written, with each record accompanied by a timestamp and proof of origin.  These records would be in a central trusted place that both parties can access and where neither party can change the records.

Financial professionals can then take those reliable records and do what we do today – model the current state of the marital estate (the base case) and any number of scenarios the family may request.  These scenarios always show both parties financial positions so it is quickly clear and understandable what the impact of any one change is on the financial futures of either party.  

Another function where blockchain can keep more money with the couple vs the legal system is to use a hash function to compare settlement and other papers in a divorce.  A lot of resources are used to compare line by line, word by word the documents that make up a settlement that gets filed.  Presumably a hash function could make quick (and inexpensive) work of this necessary function.

Digital signing is already in use in our firm and many others.

An attorney is still critical for understanding legal rights in a divorce.  They also serve by writing great executing documents including QDROs, or qualified domestic related orders which are the only documents that can split pensions and qualified plans.

Blockchain Use Case:

In the example below from CB Insight’s, “What’s next in Blockchain?” substitute Wife for buyer and Husband for seller and Alice & Bob are not buying a home, they are divorcing.  Alice has no financial clue as to their marital estate whereas Bob not only understands the estate, he has total access to it.

Source: CB Insights: Blockchain technology offers a way for untrusted parties to
reach agreement (consensus) on a common digital history. A common digital history is important because digital assets and transactions are in theory easily faked and/or duplicated. Blockchain technology solves this problem without using a trusted intermediary. In the same vein, a blockchain could be used to establish ownership over any number of physical assets — cars, art, musical instruments, and so on. A paper record of title is prone to forgery and/or physical degradation. Centralized databases are prone to hacking, human error, and/or tampering. A blockchain means there is no single entity controlling the ledger. Therefore, recording physical assets on a blockchain is a prime example of where the technology might come in handy to track ownership with a tamper-proof, neutral, and resilient system. distributed ledger technology. This is the idea of distributing a database among participants to ensure a common record of truth.*from CB Insights – Blockchain Explainer.

Hidden assets has always been an issue (real or imagined) for many divorcing women.  Crypto assets are a growing concern for women divorcing as few (along with their attorneys) will think to ask about crypto asset accounts.  Considering volatility of these assets, the couple may have to pay for several valuations over the course of the divorce.

Digital Banking Solution:

While blockchain technology may change the need for traditional institutional documentation, we still need a forward thinking bank for the new financial customer that is the unmoneyed and potentially financially illiterate spouse. Because the other big stumbling block in the Divorce Dilemma is securing cash. For this we suggest digital banking as a potential solution.

Cash is queen.  Women need cash to pay their way through their divorce.  To pay professionals, to provide cash flow, to be able to move out or stay put.

Women often lack credit of their own.  They need their own credit for liquidity, to manage their credit score, get a mortgage, refinance, or rent, buy a car, or reduce debt after divorce.  Women face many obstacles in obtaining capital and credit.

Digital banking devoted to distressed women in divorce can help achieve equitable outcomes on a more consistent basis.

Banks can provide liquidity through loans to the divorcing spouse.  They can offer debit and credit cards.  The bank could get repaid within 30 days of the final settlement.

Other Fintech potential solutions:

Rent-to-buy:  Divvy homes and Verbhouse
Digital bank:  N26
Insurance:  Digital Insurance Group

From the author Bonnie Sewell: As the owner of a boutique wealth management firm with a niche in divorce financial planning outside DC, we have seen the same issues come up over and over for divorcing women.  The impact on families and the larger society are profoundly negative financially. In this part of the business we work under the acronym DYSNYD which stands for the message in our work, Divorce Your Spouse, Not Your Dollars.  As a latch key kid in 1966, I first became familiar with divorce at age 9 when my dad left with his paycheck and his pension. Raised by my single mom who went from housewife to waitress to catering manager so my brother, sister, and I could stay in our house just outside Chicago. I  divorced as an adult after 28 years together, 25 of those married.

My first case as a CFP® student in 1990 involved a divorced woman living in a trailer. Today most of our cases are $5M and up estates.  I identify with both of these groups. I started in one demographic and navigated to the other. When women must fight to get their share of what they built, the marital estate is diminished by the cost of the fight. When a family is wealthy, this is wasteful. When a family is not wealthy this outcome is shameful.

We still have a divorce dilemma in this country and I wish I could tell you that things have changed in dramatic ways since 1966. That women and children have dramatically better outcomes after 50+ years. But that’s just not the case. Which means we’re still hurting families instead of helping.

The most recent example I can give you of how much perceptions followed by action needs to change is when even the press insists that Jeff Bezos, the “richest man in the world” is getting divorced, somehow ignoring the fact that MacKenzie Bezos, the richest woman in the world (evidenced by community property state, 4 children, and her having started the business with him) has divorced.  Theirs appeared to be truly amicable and transparent and together they accomplished a division that at first was not even articulated in the press accounts.  Let’s get to the future so less wealthy divorcing folks can achieve better results.

Bonnie A. Sewell, CFP®, CDFA™, AIF® is NOT AN ATTORNEY AND DOES NOT PROVIDE LEGAL ADVICE. All information he provides is financial in nature and should not be construed or relied upon as legal or tax advice.  Individuals seeking legal or tax advice should solicit the counsel of competent legal professionals knowledgeable about the divorce laws in their own geographical areas or CPAs qualified to provide tax advice.

DISCLOSURE:  All of the above is believed to be accurate but should be considered informational only and should not be considered financial, tax, or legal advice.  Seek advice from a paid professional under contract to you. 

Copyright © 2019.  All Rights Reserved.  American Capital Planning LLC

Pic: Photo by Les Anderson on Unsplash

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