You thought your life would never change. But divorce is all about change. Here are some questions and answers about your finances when your divorce. Is change scary? You bet! But getting answers to questions about your finances when you divorce will help you through the process.
Will you have to go back to work when you divorce?
Going back to work may be the most critical thing about your finances when you divorce.
Question: I have been a stay-at-home mother and I have not worked since my husband and I were married a number of years ago. Will I have to go back to work when I get divorced?
Answer: Most people go into a marriage with certain assumptions about what their life will be like.
For couples who have been married a long time, particularly where one of the spouses stayed home to take care of the children, there is an expectation that the dependent spouse will be supported for life.
Sometimes that expectation comes from parents who were married in the 40s or 50s who had friends or relatives who divorced when laws were more protective toward wives. Sometimes that assumption or expectation comes from the nature of the couple’s relationship.
However, modern divorce law views a marriage as a domestic partnership. When the marriage ends, the assets and liabilities are identified, valued and distributed to each spouse on an equal basis. You may be entitled to spousal support during the divorce and for a short time after the marriage ends.
Except in very unusual circumstances, a spouse will not be under an obligation to provide long-term support to the other spouse after divorce.
Most women will have to go back to work after a divorce, even if they have been out of the labor market for a very long time. Most middle to upper-middle-class families have accumulated sufficient assets to provide for both spouses in their retirement, but most families have not accumulated a sufficient amount of assets to allow one of the spouses to remain out of the labor market if the divorce occurs prior to the time the parties retire.
Unless the marital estate has liquid non-retirement assets such as investment accounts with a value of $2 million, you will have to go back to work.
This is where budgeting comes in. If your budget requires you to have an annual income of $60,000 and you assume a conservative interest rate of 5 to 7 percent, you would have to have an investment account or other assets that you could liquidate in the approximate amount of $1 million.
If you were receiving child support, it could make up the difference between your budget the income from your investments. Remember, though, that child support only lasts until your children reach the age of majority.
I frequently send my clients to vocational counselors who can assess their transferable skills and point them in the right direction. Being a working mother and being involved in your children’s lives are not mutually exclusive. If you are careful in your selection of your career, you may be able to obtain a position that will allow you the flexibility you need to work around your children’s schedules.
For clients who do not have a non-custodial parent in the same geographic area, or who have a custodial parent who has elected not to be involved in the children’s lives, finding suitable employment may be more of a challenge.
Do you need to see a financial planner when you divorce?
Question: What type of financial planning should you think about when you divorce?
Answer: An attorney is retained to provide legal representation, not to give financial advice. As a practical matter, however, a divorce lawyer will frequently provide a client with guidance; typically, this is because financial and legal issues are interwoven.
You should develop a budget of your monthly living expenses so that you have a good working knowledge of what it costs you to live.
If you have been in a marriage where it was not necessary to keep a budget, then this may be a substantial adjustment for you. In this case, it may be a good idea to talk to a professional financial planner or a certified public accountant. A financial planner or CPA can work with you to develop a plan that will help you live within your means while adjusting to the financial changes that will occur in the divorce.
Unless you are a spouse with a substantial earning capacity, or unless you had a sizeable marital estate of non-retirement assets, you will probably need to change your financial expectations. Working with a financial planner will give you the comfort level you need to strategically plan for your divorce and beyond.
What kind of financial records should you keep safe when you divorce?
Question: I am thinking about filing for divorce. What type of records should I maintain before and during the time the divorce action is pending?
Answer: It is very important to maintain complete records of income you receive and expenses you incur during your divorce. Save bank statements, cancelled checks and credit card statements. Because there may be disputes over what expenses a party incurred (and whether those expenses are reasonable), it’s a good idea to keep receipts for all expenses. That includes receipts for:
- Utilities
- Auto expenses
- Clothing
- Entertainment
- Groceries
What can you do to make sure you have health insurance when you divorce?
Question: What can I do to make sure I have health insurance after my divorce, since I have used my spouse’s health insurance?
Answer: Many employers provide health insurance. Depending on the size of the employer, you may be eligible for COBRA benefits.
COBRA benefits entitle an employee to continue using health insurance after employment. These benefits also entitle a divorcing spouse to maintain health insurance for between 18 and 36 months. They do cost money, and the benefits must be put in place a certain time frame – usually 60 days after the actual date of the decree.
Is there a limit on how much child support you will receive when you divorce?
Question: How much child support will I receive?
Answer: Child support in Alaska is set according to a specific formula. The maximum amount of income subject to the schedule is currently $120,000.
How does the court decide if a parent should pay child support on net income above $120,000?
Civil Rule 90.3 allows the trial court to award child support based on adjusted income above the $120,000. However, this is the exception rather than the rule.
When a custodial parent seeks child support at an amount above $120,000, the trial judge must take into account what the custodial parent is earning (or can reasonably be expected to earn).
Because the custodial parent, as well as the non-custodial parent, has an obligation to support his or her children, the trial court takes in the amount the custodial parent would be expected to pay for child support. The underlying premise is that each parent has an obligation to support the children.
The trial court will also want to see a list of the custodial parent’s monthly living expenses. The court will attribute some of these expenses to the children based on the number of children.
For example, for two children, the court will take into account 2/3 of the mortgage payment, 2/3 of any monthly car payment or transportation cost, and 2/3 of grocery expenses. The trial court will have to assess the parties’ standard of living during marriage to determine whether the children’s needs are reasonable or unreasonable.
Once the trial court comes up with a budget, the trial court will add the non-custodial parent’s child support and the custodial parent’s hypothetical child support together. The court will subtract the total child support from the total monthly expenses the court has allocated to the kids. If there is a short-fall, the court can (but is not required to) increase child support so that the children’s financial needs are met.
Question: Once a child support order is entered, can it be modified?
Answer: Either parent can go back to court once a year to have the court review child support. A parenting seeking review has to file a motion to modify child support. Child support can be modified if the existing amount of child support would go up or down by 15%. The modification would be effective as of the date of the motion to modify. Federal law prohibits a court from modifying child support retroactively, meaning it can’t be modify as of a date prior to the motion. But understand, that if you file a motion for the review of child support, you run the risk that the support might go down or up leaving you with an unpleasant surprise. So talk to your lawyer before you jump in.