Anyone who has gone through a divorce can confirm two things: it’s an unpleasant process, and there are dozens of decisions to make.

Sometimes, we make a poor choice (or no choice at all) because of biases and shortcuts in how we think. Knowing what these biases and shortcuts are and how they work is the first step to making better, more effective choices about your divorce settlement.

These are the errors and biases I see most often in divorce cases and how to deal with them.

Affect Heuristic (aka Emotional Decision-Making)

A heuristic is a mental shortcut we use to make decisions quickly. Everyone uses these shortcuts because making quick decisions makes our lives easier. 

One mental shortcut that can have an outsize effect on your divorce settlement is based on your “affect” — how you feel. When employing the Affect Heuristic (or “emotional decision-making”), you’re allowing your decision to be influenced by your emotions about a thing instead of the facts about a thing.

For example, in negotiating her divorce settlement, a wife may be dead set on keeping the family home. It is where she has lived for 25 years, raised her children, and built a life. That home feels safe.

Staying in the home may be unaffordable and in order to be awarded the home she will likely need to give up investments that she could use to provide for her retirement.

To make matters worse, every visit to the couple’s long-time Financial Advisor to discuss the investing account has made her feel bored and intimidated, because the advisor talks over her head.

To her, the home feels safe, while the investing account feels overwhelming.

Even though the choice is clear in terms of dollars and cents, she may struggle to do what is best for her financially because of how she feels about the house and the investing account.

Real Property in Divorce: Should I Keep the House?

Regret Aversion Bias

Regret aversion bias is pretty much what it sounds like — it is activated when a person fears feeling regret if they make “the wrong choice.”

Here’s the classic divorce example: one party makes a settlement offer, and instead of agreeing or making a counteroffer, the other party does nothing because they fear making the wrong decision.

Financial Planning in Divorce

This situation is uncomfortable for everyone. The party who made the offer is frustrated at the lack of movement, and the party who can’t accept or counter the offer is frozen with fear. How can a case move forward?

It’s important to realize that regret aversion bias can arise from a lack of understanding or information. It’s difficult to agree to something if you don’t understand what you are agreeing to.

Mental Accounting

Mental accounting happens when we classify different pots of money differently in our heads.

For example, logically speaking, dollars in a savings account are the same as dollars in a checking account. But we may have told ourselves that the dollars in the savings account are for property taxes, while the dollars in the checking account are for day-to-day expenses.

We then might be tempted to think that whoever gets the house should also get the savings account to pay property taxes — even though there is no reason for this association aside from mental accounting.

Another example might be a husband who does not want to “give up” part of his 401(k) account because he thinks of it as his retirement money. At the same time, he might be very willing to trade away an investing account.

In some cases, the investing account might be more useful in the near term, but he can’t see that because of mental accounting.

The real problem with mental accounting is that it limits our ability to be creative when dividing marital property.

Fundamental Attribution Error

The technical definition of this error is a tendency to over-emphasize personality-based explanations for behaviors we see in others while we under-emphasize situational explanations.

Put more simply, we assume someone does something because of the waytheyare, when they may be doing it because of the situationtheyarein.

For example, during mediation a husband is frustrated and hurt by a seemingly unfair opening settlement offer — it’s too low. He may attribute this offer to his spouse being selfish, when the spouse is actually lowballing the opening offer as a negotiation tactic.

He has made a fundamental attribution error in her thinking. Now he is insulted and may have difficulty thinking clearly as the mediation session wears on.

His counteroffer might be equally unfair, causing his spouse to fall victim to the same error and assume he is greedy.

If both parties remain set in their thinking, they may not reach agreement.

Anchoring Bias (Conservatism Bias)

This bias occurs when we rely too heavily on the first piece of information we receive about something and ignore newer (and possibly more accurate) information. Anchoring bias is extremely common in everyday life. 

Anchoring bias is often seen if there are questions about the value of a piece of real estate or family business.

For example, the first rough draft of an Inventory may show the family home valued at X amount. Maybe this was the value shown on a website like Zillow, or it could be the value shown on the property tax statement.

A later draft of the Inventory might show a value of Y (which is different from X by a wide margin). That value of Y is based on a Comparative Market Analysis done by a qualified Real Estate Agent taking into account specific elements about the home not captured by the previous value assessment.

But one party already has the idea that the home is worth X and not Y. Now the parties may find themselves at loggerheads.

Negotiating Techniques in Divorce

Reactance Bias

This bias can be summed up in one simple phrase: “Don’t tell me what to do.” 

Reactance bias is the tendency to do something different from what someone wants or asks of you in reaction to a perceived attempt to constrain your freedom of choice.

The simplest example would be when one party in a negotiation refuses to fulfill a simple and routine request just because they don’t want to.

Reactance bias is about maintaining your control and perceived autonomy in a process that can feel very disempowering. If you are the party exhibiting this bias, you may be actively costing yourself extra money and destroying goodwill by dragging out your case or refusing to cooperate.

Thinking More Clearly

So how should we deal with these biases, errors, and mental shortcuts? 

The first step is building awareness that they exist and understanding that they may interfere with your ability to move forward. Once you are aware, the next step is to ask yourself questions to focus more on the facts at hand. Those questions might include:

• Why am I making this specific request?
• Does that asset really serve my needs, or is there something else driving my decision-making?
• Why might my soon-to-be-ex-spouse be behaving this way?
• Is there evidence to support my conclusion? Is it the most up to date and valid evidence available?
• What is customary or routine in a case like mine?
• What do experts say about this element of my case?
• If I’m unable to make a decision, is there someone who can help me think through my options?

If you’ve asked yourself these questions, consulted with your attorney, searched your soul, and still find yourself struggling, that may be a sign you need outside assistance.

A Certified Divorce Financial Analyst™ (CDFA®) may be able to provide the analysis and expertise you need to overcome some of your errors in thinking.

Truly wise decision-making is difficult in the best of times. In especially hard situations, like a divorce, we err most often when we draw a conclusion without getting enough information. Keep an open mind, ask the experts, and check yourself periodically. It probably won’t make your divorce pleasant, but understanding potential errors in your thinking can help make the process more efficient and less stressful for all parties involved.

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