Divorce and Your Finances

Breaking Up in a Tough Economy

by Lisa Khan

The decision to divorce is never easy, but this economy poses a special challenge to couples contemplating going their separate ways. The decision is even more difficult as spouses look at their debts and wonder how they can make it financially without their partners. How does one cope when financial tensions exacerbate an already tenuous relationship?

Taking a clear-headed look at the financial issues related to the breakup and consulting an expert to guide you in sound decision-making can make a difficult situation easier to manage. Child support, property and shared debt are the primary areas in which you’ll need to come to an agreement.

CHILD SUPPORT/SPOUSAL MAINTENANCE

When two people divorce, under normal circumstances the issues of child support and spousal maintenance are directly linked to the amount of income earned by both parties. But if one is laid off, as may be the case today, this can significantly skew the results of the divorce settlement.

These new considerations may not have presented themselves in better economic times:
• There is less money to go to child support and to spousal maintenance.
• The job market is tenuous at best, particularly if you are expecting a historically non-working spouse to obtain employment.
• If you are already divorced, you may find that you are unable to maintain your payments for child support or spousal maintenance.

If you are a victim of a layoff, you may be faced with the realization that that the child support or spousal maintenance you are ordered to pay is based on your previous income, and you may no longer be able to afford the payments. If you can no longer make your child support payments due to a change in income, you need to act now by seeking a modification of the child support from the court. If you delay, you might find yourself behind in payments with your ex-spouse bringing a “contempt” action against you. Furthermore, in Arizona, once the child support payment is due, it cannot be reduced.

COMMUNITY PROPERTY AND DEBT

A decrease in income will affect not only the amount of child support or spousal maintenance, but may also affect the division of property—one of the biggest concerns in a divorce. Arizona is a community property state. This means that generally, all of the property you accumulate during the course of your marriage belongs to both of you jointly. Likewise, all of the debts you accumulate during your marriage is community, meaning that both of you are responsible for repayment of that debt.

The focus of financial divorce settlements today has shifted from an equitable division of generally ample assets in good economic times to minimizing considerable debts in the current environment. Many families are upside-down on their mortgages, with retirement plan values dwindling.

You may find that your collective ability to maintain your monthly debts is compromised. Your home value may have dropped below your mortgage amount. You may not be able to sell your home and the increasing debt burden may offset any equity available for a property settlement. However, there are ways to navigate through this difficult terrain.

• Consider creative financial arrangements. For example, you can negotiate your divorce agreement to adjust later to more favorable economic circumstances. You can construct your agreement to allow for the sale of your home at a later date, while allowing you to live separately in the meantime. Experienced family law guidance can help you restructure debt, find tax efficiencies and use retirement monies tax-effectively to deal with cash flow issues.
• Even if your budget is strained, think twice about going through the process without an attorney’s guidance. It can wind up being “penny wise and pound foolish” because you may inadvertently give up some benefits or fail to consider certain eventualities.
• For some families, what is needed is a reassessment of their lifestyles. Both spouses may need to cut back spending in order to create two separate households.
• You may need to consider bankruptcy as a last resort. It is possible to go through bankruptcy with more of your assets intact as long as certain procedures are followed.
Financial tensions remain one of the top reasons for divorce in the U.S. When money is tight, tensions flare in a marriage, and there is always plenty of blame to be passed around.

Making the choice to divorce—no matter what the economic forecast—is a daunting decision you hopefully will not ever have to face. But as the mortgage payments mount and credit card debt and other bills begin to increase, it’s important to remember that you do have options—and staying in a broken marriage shouldn’t have to be one of them. If you do choose to proceed with a divorce, consult with an attorney who is experienced in family law and rely on his or her guidance.

Lisa Khan is a family law attorney at the Phoenix Law firm of Jaburg & Wilk. The family law group assists Arizona families with dissolution, child custody, child support, prenuptial planning and post dissolution issues.

www.JaburgWilk.com
602.248.1059