In the event of a divorce, marital property (any property acquired during the marriage by either spouse) must be divided. Generally this division follows the laws of the state in which you are living at the time of the divorce.
There are three basic financial elements to divorce–division of assets, alimony, and child support. Below we discuss how assets can be divided, strategies for dividing assets out of court, and how alimony and child support work.
How are the Assets Divided?
Depending on the laws of your state and your prenuptial agreement, assets are usually divided in one of three ways:
- Community Property Settlements (in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington): All joint assets are divided 50-50.
- Equitable Distribution of Property: The court distributes the assets according to what they think is fair, based on the length of the marriage, age, health, earning potential, and custody of children.
- Common Law (only in Mississippi): Property is divided according to whose name is on the title, business agreement, etc.
Dividing Assets Outside of Court
There are several ways in which you can distribute marital assets without the court’s involvement:
- You can agree to divide them (spouses take turns choosing assets).
- You can auction off all joint assets and split the proceeds.
- You can talk about the worth of each asset to each individual and decide who should receive which items.
Alimony is the amount of money one of the divorcees pays to the other under the divorce agreement. The court decides the amount of alimony that should be paid based on need, earning potential, length of marriage, and health. Important points:
- Although once quite standard, alimony payments are increasingly rare.
- Alimony usually isn’t awarded if the income of each spouse is approximately the same.
- Courts decide how long alimony will be paid, but payments always stop when either spouse dies or the recipient remarries.
- Alimony is taxable income.
- It is usually awarded to women who have never worked outside of the home, but even then it is restricted to a limited period of time.
- Alimony is intended to give you enough time to acquire job skills by the time payments have ended.
Child support is the entitlement of children to be supported by their parents. Typically, the parent who has custody fulfills his or her obligation by taking care of the children everyday, while the other parent makes child support payments that are usually determined by state law. Important points:
- Child support lasts until the child turns 18-21 (depending on the state). Child support payments usually end when a child gets married, enters into the armed forces, or lives independently.
- In many states, child support obligations can continue for a year or two beyond this point if the child is a full-time student.
- If parents share custody more or less equally, the higher income parent often is ordered to make payments to the lower-income parent.
- Child support is reduced if the spouse who is paying loses his or her job or suffers a severe financial setback.
- Child support is not tax deductible.