Thinking About Divorce? a Financial Primer.
'the pivotal unanswered question in the mind of an unhappy spouse is whether he or she would survive the financial impact of divorce.'
The decision to end a marriage is complex and difficult, at best. However, far too often, the pivotal unanswered question in the mind of an unhappy spouse is whether he or she would survive the financial impact of divorce.
Despite wealth of resources provided here, and through the courts, men and women contemplating divorce too often haven't the slightest idea how a divorce will impact them financially.
Often, they are afraid to hire a lawyer fearing, irrationally, that such a step might represent a point of no return. Without some solid assurance that they will stay afloat after a divorce, they wonder whether divorce is even an option.
'people are reassured to know that it is usually possible for an experienced divorce lawyer'
While this is a legitimate question to which there is no easy answer, most people are reassured to know that it is usually possible for an experienced divorce lawyer, armed with just some basic information about the history of the marriage and the financial circumstances of the parties, to offer some good educated predictions regarding the outcome of a divorce case.
To offer useful guidance in such a short period of time lawyers often begin with formulas. These formulas are not always a matter of law, except with respect to child support. Nevertheless, many judges use them regularly, not to arrive at final decisions in their cases, but to provide themselves with a starting point for their deliberations and to remain fair and consistent in their decisions.
'it is possible for a lawyer to estimate, with some degree of certainty'
People who, for months or even years, have been struggling with fears about their financial future in the face of possible divorce, understandably feel enormous relief to hear that it is possible for a lawyer to estimate, with some degree of certainty, what they can reasonably expect to receive as part of their divorce settlement.
Even before consulting with a lawyer, it should be a comfort, or at least a help, to know a few general rules of thumb.
'Many people worry that the court will order them to sell their home.'
First, one should assume that, absent good reasons to the contrary, assets acquired during the marriage including home equity, retirement accounts, pensions, and savings of all types will probably be divided equally regardless of which party was the primary breadwinner.
Especially in a short marriage, assets acquired prior to marriage will probably be divided only to the extent that they have appreciated in value during the marriage.
Many people worry that the court will order them to sell their home. They are happy to learn that, when there are children living in that home, it is more likely that a court will allow the custodial parent to remain there and to pay the other parent his or her share of equity much later, either when the custodial parent marries, cohabits, or dies, or when the youngest child reaches majority.
'Child support guidelines typically focus on the income of each parent rather than on either parent's expenses'
Next, child support, if there are children, can be calculated in accordance with published guidelines. Since the late 198o's, states have been required to promulgate and publish such guidelines and they are available both on-line and through the offices of court clerks in all states.
Child support guidelines typically focus on the income of each parent rather than on either parent's expenses other than mandatory items of withholding. Anyone contemplating divorce should ask their local court for a copy of their state's child support guidelines and spend an hour or so estimating the payment that they will either receive or be expelled to pay.
'Finally comes the issue of alimony.'
Finally comes the issue of alimony. Here, there is less predictability. To determine a ballpark amount of alimony, do the following: First, look at the total net income of the spouse with the greatest weekly income.
If the income of the parties is roughly equal, there should be no alimony.
Remember, in calculating weekly net income, to add back to each party's weekly paycheck any voluntary deductions such as 401K savings or loan payments that are being deducted from weekly gross income on a voluntary basis.
'Once you have determined the net weekly income of the parties, a simple three step formula applies.'
Once you have determined the net weekly income of the parties, a simple three step formula applies.
As the first step, subtract the expected weekly child support, if any, based on published state guidelines
Next, multiply the remaining net income of the higher earner by forty percent.
Finally, from this figure, subtract fifty percent of the net income of the likely recipient of alimony.
The resulting figure should be considered a likely alimony award which can at least be kept in mind as a benchmark for planning purposes and during any negotiations concerning alimony.
'alimony is never automatically forfeited just by virtue of being the party seeking the divorce'
Reasons to vary from that number include the potential additional income of an underemployed or part time worker, and serious issues of fault. On the latter point, you should be cautioned that a single incident of infidelity is unlikely to change the alimony picture substantially especially if it has taken place at the end of the marriage.
Also, alimony is never automatically forfeited just by virtue of being the party seeking the divorce even in a situation where the other party wishes to remain married.
'alimony is typically time limited.'
Except in very long marriages, or one in which the recipient of alimony is or is expected to become, unable to work, alimony is typically time limited.
In a marriage of ten years or less, it is possible to guess that alimony will end after a time period equal to about half the length of the marriage.
If the marriage has lasted between ten and twenty years, a better estimate is to determine the length of the marriage in months and to divide that number by 40.
For example after a fifteen year marriage, it would be reasonable to expect that alimony, if any, will probably last about three-quarters of the length of the marriage or just over eleven years.
If this formula seems too complicated, simply know that the duration of alimony is likely to be something between half the length of the marriage and the full length of the marriage with the latter extreme usually being ordered only in long marriages.
'competent representation by an experienced lawyer.'
Of course these guidelines are helpful only to the extent that family income and assets are counted correctly.
Individuals contemplating divorce should collect and organize as much information about their finances as possible.
Bank and brokerage statements, pay stubs, W-2 forms, tax returns, annual benefits statements and credit card statements are all useful in putting together a good summary of family finances.
The fact that it is possible, within reason, to estimate the probable outcome of the marriage, does not obviate the need for competent representation by an experienced lawyer.
'That important decision should not be guided by fear and uncertainty.'
Divorce is not a science and the outcome of a trial can be quite different from what the parties and their lawyers expect it to be.
Because that is so, it is always better to negotiate an outcome consistent with a range of predictable outcomes than to leave the decision to an individual judge.
Long before negotiations start in earnest, though, there must be an informed decision whether to begin the process at all.
That important decision should not be guided by fear and uncertainty.
By using widely accepted formulas for estimating the most likely outcome of a contested case, when divorce cannot be avoided, at least a stressful and costly trial can be.
By negotiating wisely and in good faith, divorcing couples can at least offer one another a fair chance to live happily ever after.
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