Financial Matters in Divorce

by Victoria McGrath

A divorce often results in harsh financial consequences for former spouses who once had two incomes to make ends meet, but now must contend with one. Major financial issues that arise from divorce include child support, spousal support and the distribution of marital assets and debt. Most courts allow spouses to negotiate a settlement agreement that addresses these issues in addition to child custody. A detailed settlement agreement will typically include a parenting plan, itemized list of marital assets and debts, and a distribution plan for those assets and debts. Supplemental documents may include a list of both community and separate property along with their respective market values and professional appraisals.

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Child Support Obligations

Divorced parents share the financial responsibility of providing for their child's basic needs, such as housing, clothing, food, education and child care. Both custodial and noncustodial parents provide financial support for dependents of the marriage. Typically, the custodial parent financially provides for the child's needs directly, while the noncustodial parent financially contributes to the child's well-being by making child support payments to the custodial parent. In addition to basic child support, the court may require the noncustodial parent to make supplemental payments toward such things as the child's medical and dental care, summer camp and private school tuition, as necessary. The apportionment of child support obligations often depends on both parents' incomes and the custody arrangement. Court rules for calculating child support vary from state to state.

Child Support Calculations

Each state uses one of three models to determine child support payments: the Income Shares Model, Percentage of Income Model or Melson Formula. The Income Shares Model considers both parents' incomes and determines child support based on what a child would have received if her parents remained married. Thus, each parent contributes a prorated share of the child support obligation based on each parent's proportional share of their total combined income. The Melson Formula considers more factors than the Income Shares Model and ensures each parent's basic needs are covered in addition to the child's. The Percentage of Income Model only takes the noncustodial parent's income into account, calculating child support based on a percentage of that income.

Spousal Support

A court often awards a spouse alimony, or spousal support, when one spouse cannot financially provide for herself. Spousal support awards often come in the form of temporary support, rehabilitative support and permanent support. When deciding which form of alimony to award, courts typically consider the requesting spouse's age, education, training and earning potential as well as the length of the marriage, among other factors. For example, a court may order temporary spousal support to a stay-at-home parent with a newborn, toddler or young child. Rehabilitative spousal support may be awarded to a spouse who needs training before she reenters the workforce. Permanent spousal support is often awarded to spouses who were in a long-term marriage, particularly those who never worked outside the home.

Division of Property

The court divides marital property in a divorce. Marital property refers to property acquired by either spouse, or both, during their marriage. In an equitable distribution state, the division must be fair but not necessarily equal. The court will consider a variety of factors when making its determination, such as each spouse's earning potential, age and health. In a community property state, a court will typically make an equal division of property. A complete inventory of marital property is routinely required when property must be divided in a divorce.

Separate Property

Separate property is property acquired by either spouse before marriage or during the marriage by inheritance or gift. Division based on either equitable distribution or community property principles does not apply to separate property. Thus, separate property remains the property of the individual spouse who acquired it, unless the spouse commingles his separate property with the couple's marital property. For example, if a spouse places separate funds from an inheritance into a joint bank account held by both spouses, the funds may become so commingled that it is difficult to later distinguish the separate funds from marital funds. As a result, a court is likely to view all the funds in the joint account as marital property, unless an adequate accounting is possible showing which funds are the separate property of an individual spouse.