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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
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
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.
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