The Financial Impact of Divorce
There is no question that financial issues related to divorce are costly. While the cost of getting a divorce can be high, it can be reduced through careful planning and competent lawyers. If you have economic concerns about a current or anticipated divorce in Oakland County, or elsewhere in Michigan, you can contact the Oakland County family law team at Kronzek & Cronkright, PLLC. To set your appointment, call us at (248) 306-4004.
The cost of divorce often comes from unexpected areas. Costs vary greatly based on the circumstances and situation. Some of the significant factors that increase the cost of a divorce are custody disputes and the distribution of assets. Many people associate the cost of divorce with attorney fees, but there are many other expenses associated with both the divorce proceedings and the time period afterwards.
What If I Can’t Afford a Good Lawyer?
Somehow, the cost of a good attorney is always less than the cost of fixing the work of a bad one. In divorce cases, it is common that one party has control of the money and tries to make it impossible for the other side to defend. In that circumstance, we have been very successful in leveling the playing field by getting the court to order the other party to pay for our attorney fees. You should not settle for lower quality representation without first meeting us and discussing how we can help.
What If My Spouse is Hiding Assets and Income?
One of the largest contributors to financial issues can be the cost of a divorce. For the most part, each spouse is entitled to 50% of everything that happened during the marriage. That means everything! Real estate, retirements accounts, pensions, cash, investments, boats, tractors, motorcycles, tools, family photos – everything! All rules in law come with the occasional exception, but if a spouse is hiding assets you need a good attorney to make sure you get your fair share. A quality family law lawyer should be able to locate the assets and get you your share.
Another major contributor to financial issues is the child support obligations that parties are likely to incur after the divorce. The right to receive child support belongs to the child, and cannot be waived by the custodial parent, although the parents can agree to increase the amount, or extend the length of the child support obligation. Child support is designed to provide for the child, and includes money for health care, child care, and educational expenses.
Child support is a long-term obligation and does not always terminate when the minor turns 18. If the minor is between the ages of 18 and 19 ½, but has not yet completed high school, although they are on track to graduate, the court may order child support payments to continue until the child reaches age 19 ½ or graduates from high school.
The amount of child support a party owes in Michigan is determined based on the application of the Michigan Child Support Formula, MCL 552.501 et seq. The court can deviate from the formula under specific circumstances in determining the amount owed. For details about what circumstances allow the court to deviate from this formula, you should speak with an experienced attorney.
Failure to pay child support obligations can have a substantial negative impact, resulting in contempt hearings, the loss of occupational licenses, the loss of your driver’s license, wage garnishment, and possibly jail time. For a more complete discussion on child support, see Child Support.
Spousal Support – Alimony
Spousal support, commonly known as alimony, is a court ordered support obligation imposed on one spouse for the benefit and maintenance of the other spouse after a divorce. Spousal support is designed to support the just and reasonable needs of one spouse if the property division is insufficient for their support. Factors that the court considers when awarding spousal support include: the length the marriage, the parties’ contributions to the joint estate, the parties’ ages, the parties’ health, the parties’ stations in life, the parties’ necessities and circumstances, and the earning abilities of each party.
The idea behind the spousal support system is to allow the parties to stay on similar financial grounds particularly where one party sacrificed earning potential to support the marriage in other ways such as raising children. There are two kinds of spousal support that can be ordered: rehabilitative and permanent.
Rehabilitative spousal support is temporary to assist the dependent spouse in transiting to supporting themselves. This allows the dependent spouse to become self-sufficient, adjust to a single income, and obtain a degree or new job skills. It is common and occurs often following shorter marriages, with younger individuals, and parties in relatively similar financial circumstances.
Permanent spousal support is generally until death or remarriage of the dependent spouse. It is appropriate following a long marriage with wide skill and earning potential gaps. This occurs when there are serious doubts one party can ever support themselves independently.
As with child support obligations, there are a variety of methods by which the obligation can be enforced. It should be noted that spousal support can be modified under certain circumstances where the dependent spouse has remarried or is cohabiting, there is a change in financial need or the ability to pay, retirement, or death of the dependent spouse. The death of the payer spouse will not end the obligation which can be enforced against the estate unless otherwise fashioned. Payments for spousal support are typically not dischargeable through bankruptcy. For a more complete discussion on spousal support, see Spousal Support .
When you divorce the marital assets are divided. This includes bank accounts, homes, cars, personal property, investments, retirement accounts, and all other marital property.
Marital property is any property accumulated through the joint efforts of the parties during the marriage, an increase in value of the property accumulated through joint efforts of the parties during the marriage, and an increase in the value of separate property when the increase reflects active involvement by the other spouse, such as where an inherited home is fixed up by the spouse that did not inherit the home.
The division of the property is determined based on what is equitable, just, and reasonable; or fair under the circumstances. The division of the marital property should be 50-50 with any major departure clearly explained. The court must apply nine factors to make this determination. While the court must apply all the factors they need not be given equal weight. It is worth noting that whether one party is responsible for the breakup of the marriage is one of the nine factors and can affect the distribution of property in the divorce. Generally, payments for property division are not dischargeable through bankruptcy. For a more complete discussion on property division, see Property Division.
The Marital Home
A divorce can negatively affect your interest in a home. Often in a divorce one party will stay in the home and compensate the other party for their interest in the home. If the home is sold as a result of the divorce, depending on the circumstances, there may be a loss. In some cases the parties may decide to keep the home jointly. The proper disposition of the home is an important consideration and concern in a divorce particularly in light of the fact that the home is the average person’s largest asset. It must be determined whether keeping the home jointly, one party buying the others interest, or selling the home works best financially and as part of the parties’ relationship. These options each come with their own risks and advantages.
Damage to Credit Score and Report
While divorce itself does not directly affect your credit, the collateral harm resulting from the divorce can. In a divorce, parties often fail to pay bills, or take vindictive action towards the other party by having utilities shut off, cancelling cell phones, etc. These actions can have a negative impact on your credit score. Additionally, the debts the couple holds jointly are not automatically separated simply as a result of the divorce order. Additional steps need to be taken. The issue of joint debt must be discussed with your lender or creditor.
Divorce can cause a variety of tax consequences. Some elements of divorce that typically impact your taxes are: child support, spousal support, and the claiming of children as exemptions.
Under section 71 of the IRS Code, spousal support is generally deductible by the payer and is considered income for the payee. There are several requirements that must be met in order to allow this and it is important that your order sets these out if you wish to claim the deduction or avoid the income. Child support obligations are not considered income and are not deductible. The property transfers completed as part of the divorce are not considered income and you will not be taxed on this transfer. It should also be noted that tax benefits relating to the sale of a principal residence is transferred from one spouse to the other along with the transfer of the home.
Parties often disagree over who gets to claim the child as a dependent for tax purposes, and it is important to resolve this before filing your taxes in order to avoid any costly errors. This decision should be included as part of your judgment of divorce, but if it is not, you may wish to speak with an attorney for assistance resolving the issue.
This is just a list of some of the major financial issues created by divorce. There are many other potential impacts on your financial life both major and minor that can result from a divorce. These include things such as social security benefits, reputation, loss of time, loss of health insurance, and many others. The retention of a qualified attorney can minimize this impact. Proper planning will result in you leaving the marriage in the best possible position. Antenuptial and postnuptial agreements can also allow you to minimize the impact through proper planning. For a more complete discussion on taxation issues, see Tax Consequences of Divorce.
Prevent Financial Issues Related To Divorce
If you need assistance with an issue or any questions as to the financial issues created by divorce, call our office for a free consultation with a family law attorney.