Divorce is About the Money…Just Not the Way You Probably Think

By July 29, 2014Divorce

On behalf of The Marks Law Firm, L.L.C. posted in Divorce on Tuesday, July 29, 2014

People often have counterintuitive views about money and divorce, much of it influenced by cultural perceptions. In general, where spouses have very unequal incomes or come into the marriage with vastly different levels of wealth, the spouse with more money wants to leave with that money intact, and the spouse without that money wants the other spouse’s money…and spousal support. Simple math and the basic fact that no court will completely redistribute wealth from one spouse to the other show that popular ideas about money and divorce do not reflect reality.

But those impressions tend to be hard to fight, particularly when fueled by raw emotions at the onset of a divorce. An aggrieved spouse will see money as compensation for a wrong – regardless of whether that spouse would be on the paying or receiving end of the money.

For a considerable period of time, two people have run one household together with a combined income and wealth. Now, moving forward, those same two people will need to run two households on separate incomes, with one possibly paying the other spousal or child support. Since the incomes do not magically change upon divorce, every couple finds themselves having to pay more to live without actually earning more. The shortfall will come from somewhere — reduced savings, a different standard of living, a diminished retirement.

Any couple beginning or contemplating divorce would do well to remember that the family net worth will need reallocation, and that it would serve both spouses to preserve as much of that wealth as possible in the long run.

How could a couple achieve that goal?

First, each spouse should consider his or her reasonable expenses as a newly single individual. What do I truly need? What can I really afford? In making this calculation, each spouse should remember that money spent now takes away from money saved for later (college for the kids, the spouse’s retirement).

Second, each spouse should consider what assets he or she could sustain after divorce. Who can actually pay for the marital residence? Who can pay for a new residence?

Third, each spouse should examine income streams and determine what baseline lifestyle he or she could support on that level.

Fourth, each spouse should decide whether it is worth reducing investment funds meant for retirement to make life nicer in the short term. Is that a valuable trade off?

Finally, each spouse should remember that the more one takes from the marital estate or the greater burden of support imposed on one spouse diminishes the retirement options for both spouses. For example, maintenance now may mean less of a contribution to a pension fund, thereby reduces the marital share a spouse may receive at retirement. Spouses may decide to exchange maintenance for defined contributions to retirement funds to assure that the most vulnerable time in life is adequately covered.

Divorce need not be a zero-sum financial game. Thoughtful consideration by both spouses can lead to a continuation of growing the marital estate rather than draining it – and both spouses might just be happier in the long run.

If you have questions about property issues and financial planning in divorce, contact us – we can help.