Financial Issues in Divorce
The financial issues that need to be decided in any divorce case are:
1. division of the marital estate
2. determination of spousal support
3. determination of child support
4. allocation of children’s expenses
5. how taxes will be handled
Division of the Marital Estate
What is in the marital estate? Is there separate, non marital property (assets or debts) that existed before the marriage, or was gifted or inherited by one of the parties? Has there been earnings or growth in the non marital assets? If so, the growth or earnings may be considered marital property.
Are there assets that need to be valued, such as real estate, pension plans, vehicles, antiques, or art? Do one of the parties own a business, and if so, does it need to be valued? Will future pension plan benefits be divided at the time of retirement? how will other retirement funds be divided?
How will the marital home be handled? Will one party keep the home? Will it be sold? What will happen with the proceeds? Can the party keep the home afford to pay the mortgage and expenses? Where will the other party live?
How is the best way to divide the marital estate? What is equitable given all the circumstances?
Determination of Spousal Support
Spousal Support (sometimes referred to as maintenance or alimony) is a (typically taxed, but this changes in divorce agreements starting in 2019) transfer of funds between the parties so that they can have sufficient income to meet their needs.
What are the incomes of each of the parties? Is the income steady, trending up or down, or variable? Is there a need for spousal support, and if so, is there an ability to pay by the one who is being asked to provide spousal support? Does the potential recipient spouse have sufficient assets that he/she would not need support?
How much is needed and for how long? Will the recipient be able to begin to support him/herself in the future? What help do they need to be able to do that?
What impact do the children have on the parents’ ability to earn income? Is it better for the children for one parent to continue to work less than full time and to receive spousal support?
There is now legislation in Colorado that provides some guidance to the Courts on the award of spousal support, including a non-presumptive formula for the amount and the duration of maintenance. There are numerous issues that are to be considered by the Courts when considering spousal support, and it is wise for parties to consider these issues as well, rather than just use the formula. They include:
(i)the financial resources of the recipient spouse, including the actual or potential income from separate or marital property or any other source and the ability of the recipient spouse to meet his or her needs independently;
(ii) the financial resources of the payor spouse, including the actual or potential income from separate or marital property or any other source and the ability of the payor spouse to meet his or her reasonable needs while paying maintenance;
(iii) the lifestyle during the marriage;
(iv) the distribution of marital property, including whether additional marital property may be awarded to reduce or alleviate the need for maintenance;
(v) both parties’ income, employment, and employability, obtainable through reasonable diligence and additional training or education, if necessary, and any necessary reduction in employment due to the needs of an un-emancipated child of the marriage or the circumstances of the parties;
(vi) whether one party has historically earned higher or lower income than the currently income reflected and the duration and consistency of income from overtime or secondary employment;
(vii) the duration of the marriage;
viii) the amount of temporary maintenance and the number of months that temporary maintenance was paid to the recipient spouse;
(ix) the age and health of the parties, including consideration of significant health care needs or uninsured or un-reimbursed health care expenses;
(x) significant economic or non-economic contribution to the marriage or to the economic, educational, or occupational advancement of a party, including but not limited to completing an education or job training, payment by one spouse of the other spouse’s separate debts, or enhancement of the other spouse’s personal or real property;
(xi) whether the circumstances of the parties at the time of the divorce warrant the award of a nominal amount of maintenance in order to preserve a claim of maintenance in the future; and
(xii) any other factor that are deemed relevant.
Determination of Child Support
Child support is designed to help both parents work out how much they should each be providing financially for the basic needs of their children. Child support is a non taxable transfer between parents. The Colorado Legislature has created a set of child support guidelines that parties are supposed to follow unless they have good reason to deviate from them. The guidelines determine the amount of child support that is to be paid by one parent to other, and use the following key variables in computing the amount of child support:
(i) the gross income of each of the parents
(ii) the spousal support that is being paid/received between the parties
(iii) the number of children under age 19
(iv) the number of overnights that the children have with each of the parents
(v) any extraordinary expenses that one of the parents is paying on behalf of the children (eg health insurance premiums, school fees, etc)
Allocation of children’s expenses
How will the parents cover the expenses related to the children, including such things as clothes, extracurricular activities, health insurance, transportation, car insurance, cell phone, school expenses and fees, allowance, etc.? Do decisions need to be made about funding post secondary education?
How will taxes be handled?
Who will claim the children as exemptions? How might that change as the children reach the age to start to apply for financial aid for post secondary education? Who will claim deductions related to jointly held assets such as real estate?