If you are like most people, your number one financial concern during divorce is maintaining positive cash flow – in other words, being able to pay the bills on a monthly basis – not only during the divorce process, but five, ten, fifteen years into the future. In order to meet cash flow needs, there are various sources of money that may be available to you as a result of your divorce: child support, spousal support and marital property.
Generally, child support is based on factors such as the ages of and number of minor children, the amount of time they will reside with each parent, and the income of each parent. These factors are plugged into a formula, which then supplies a recommendation for the Court. For Massachusetts, it is the Massachusetts Child Support Guidelines and Worksheet.
However, the child support formula does not take into consideration your child’s actual expenses. For example, extra-curricular activities, private school tuition, and college funding are not factored into the formula. These are considered “extraordinary expenses,” and they are often an area of great discussion and/or argument. It may be unrealistic to keep your child in hockey, gymnastics, and camp; you and your soon-to-be ex-spouse will now have to start making decisions based on what is financially feasible.
Financial neutrals can help their clients determine which costs may not be addressed by the child support guidelines and then help them find alternative solutions to cover these expenses.
Another source of income or an expense for many divorced people will be spousal support. Spousal support calculations in Massachusetts are now based on the Alimony Reform Act of 2011. However, the two most heavily weighted factors are still need and ability to pay.
Unless you have prepared an accurate budget, you will not know how much spousal support you need – or, if you are on the other end of the equation, how much you can afford to pay.
Financial neutrals can help their clients prepare detailed and accurate budgets so they both understand each other’s need and ability. Apply that information to various spousal support scenarios. And thus, enable their clients to have an open discussion on spousal support and arrive at an option that works for them.
Remember, no two divorcing couples have identical circumstances. The standard is to give support to the spouse who needs it in order to keep the family on an equal setting – however, there is an underlying duty for each spouse to work towards being financially independent of each other.
Many states and provinces call for an equitable division of property. Massachusetts is one of those states. “Equitable” does not always mean “equal” – it is, however, supposed to mean “fair.” Although most divorces settle 50/50, it can make a huge difference which 50% you get; in other words, all assets are not created equal.
In many divorces, the biggest question is who gets the marital home. Should the wife get it, should the husband, or should they sell it and split the proceeds? What if the house is “underwater” – meaning that the homeowners owe more on their mortgages than their houses are worth? The answer is not always easy or clear. In a normal economy, couples typically build equity in their homes; if they decide to divorce, they would usually divide the equity they had built by selling the house or by one partner buying out the other’s share. But after the recent boom-and-bust cycle, many couples own houses that neither spouse can afford to maintain on his/her own, and that they cannot sell for what they owe.
You need to create an accurate budget today, and you need to understand how child support, spousal support, and property division will impact your ability to cover your cash-flow needs. This is where a financial neutral comes in: we analyze and illustrate short- and long-term implications of different settlement proposals by factoring in expenses, investment earnings, taxes, and inflation. Our clients are then able to make educated decisions about their financial futures. Remember, you only get one chance to negotiate your property settlement. Can you really afford to make a mistake?
Find out about our Mediators’ Financial Limitations
Find out about Collaborative Law – Collaborative Divorce