Managing Finances in a Divorce: Know Your Rights

managing agreements in a divorce
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The entire process of a divorce is emotionally draining. It is also financially draining. To ensure that you are adequately protected, hire a divorce lawyer and financial adviser you can trust. If you have children, it is also essential to hire a child support attorney.

Data from NOLO shows that the average cost of a divorce is $12,900. According to CNBC, the average cost differs per state, though. For instance, the average cost of divorce in California is $14,235 and $13,710 in New York. These are high because of divorces among the wealthy. NOLO states that the median cost nationwide, meaning the actual middle point, is $7,500. Furthermore, 42 percent of divorces cost $5,000 or less. All these divorce-related expenses are not tax-deductible.

The Burden on Women

Apart from the expenses for the process, life after divorce is more expensive because both partners lose the joint income. According to experts, each needs to find a source of 30 percent more income to maintain the post-divorce lifestyle.

Women are often left with more financial hardship after the divorce. Many have given up their career to care for children and find it difficult to get back on track professionally. When they rejoin the workforce, the years lost also put them in the lower rungs in terms of salary.

Data shows that 20 percent of women fall below the poverty line after a divorce and a fourth lose health insurance. A third lose their homes. If there is a family home, this is often sold to pay for the remaining mortgage, and only the equity is divided between the spouses. This is not enough to buy another house. Even if it is enough for a deposit, a newly divorced woman usually cannot afford to get a new mortgage. Also, up to 75 percent do not receive full payment of court-ordered child support. Many turn to public financial assistance programs, but even these are not enough to cover all their needs.

Alimony and Child Support

In a divorce, the court orders the spouse with a higher earning to support the other for as long as the other has not remarried. Depending on the state, this is called spousal support if there is a separation prior to the actual divorce filing, temporary spousal maintenance during the divorce proceedings, and post-divorce maintenance after the divorce has been finalized.

The length of time for providing alimony varies per state. In New York, it depends on the length of the marriage. It is 15 to 30 percent of the duration of marriages that lasted up to 15 years, 30 to 40 percent of the duration of marriages that lasted for 15 to 20 years, and 35 to 50 percent of the course of marriages that lasted more than 20 years.

States also have their formulas for calculating alimony. In New York, alimony will probably be ordered if one spouse’s income is lower than two-thirds of the other. The computation has several steps. First, 20 percent of the lower-earning spouse’s annual net income is subtracted from 30 percent of the higher-earning spouse’s annual net income. Step two is taking 40 percent of the spouses’ combined annual net income. The first figure is then subtracted from the second figure to arrive at the yearly alimony. This is divided by 12 to arrive at the monthly alimony payment.

The calculation for child support also differs by state. States have free online calculators for this purpose. They consider each spouse’s income and who has custody of the child. States vary in how they define income, though. Some use gross income, while others use net income. Investment income, overtime pay, bonuses, and cash gifts may also be included in some states.

A lawyer’s advice is essential because there may be factors to consider that are not included in the state’s general guidelines. If so, these must be petitioned for in court. For instance, a child may have special needs or medical needs that entail higher expenses. Also, if the other spouse is earning a very high income, a higher computation can be requested to maintain the child’s lifestyle. The cost of education is another consideration if the child is in a private school.

Preparing for Life After Divorce

Unless one or both spouses have very high incomes, alimony and child support are often not enough to cover actual expenses. Furthermore, the spouse receiving alimony is not allowed to put even part of the money into a retirement fund. It is, therefore, necessary to find other sources of income while ensuring that the agreed amounts are being paid.

Once a marriage is on the rocks and is heading toward divorce, it is best to prepare by looking for a job or setting up a small home-based business with little to no start-up costs.

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