How Divorce Settlements are Calculated

How Divorce Settlements are Calculated

Divorce is a common event in the United States, with about 40 percent of all unions dissolving this way. The chances of divorce actually rise with the number of times an individual has been married: first-time marriages end in divorce about 40 percent of the time, second marriages end in divorce about 60 percent of the time, and third marriages are dissolved more than 70 percent of the time.
In public records it’s possible to see an abstract of a marriage certificate or divorce decree but the only way to receive the entire document from a court’s records is if you are one of the divorcing spouses or a child with a legal right to receive the document. Complete divorce records are not usually public but the availability of information may differ from one state to another.
Each state has specific laws regarding divorce, including fees collected, showing proof of marriage, and mandatory “cooling off” periods that are aimed at preventing nonessential divorces. Divorce settlements usually include:

  • the division of shared property
  • child support provisions
  • the dissolution of financial accounts
  • division of debt payments
  • alimony

Division of Property and Debt

Not all accounts and personal property are fair game in divorce. Accounts held or inherited and items purchased before marriage likely remain in the possession of the original owner and not accessible by the spouse.
The key terms to understand in divorce are “equal” and “equitable.” Nine states have laws that require an equal division of property, including New Mexico, Nevada, Louisiana, Idaho, Texas, Washington, Arizona, California, and Wisconsin. These are called community property states.
Even without community property laws, most states consider anything purchased during a marriage to be co-owned, even some business assets. Co-owned properties, whether real estate, vehicles, or valuable items, are usually split 50-50 in a divorce. The process involves:

  • appraising items for their value
  • providing an accurate accounting of all holdings
  • determining when the items were acquired

Equal vs. Equitable

Division of Property

Most states require an equal division of property, while others use the word “equitable” which means almost the same thing, but indicates that a mediator or judge’s discretion is used to determine the division of assets. That may mean:

  • one party gets to keep a business started during the marriage while the other party gets a larger share of a different account;
  • one person keeps the marital home while the other gets a comparable share of other assets
  • the noncustodial parent pays child support to the custodial parent regardless of income

Determining Alimony

Alimony, or spousal support, is money given by one person to their ex-spouse after a divorce. Either party is eligible for alimony if there is a significant imbalance in finances after the divorce.
Traditionally the wife was awarded alimony for supporting her husband and caring for the home and children while he worked. Without alimony she might be destitute because she spent years at home when she could have been developing a career and independent income.
Types of alimony include:

  • temporary or permanent – not all alimony goes on forever; mediators or judges may determine a way that alimony is paid until a spouse is able to rejoin the workforce, or may make it permanent due to a disability
  • one-time alimony – this is a lump-sum type of support, whether it’s an asset like the marital home or an account that will provide financial support
  • conditional – more states are moving to this model in which the individual receiving alimony must abide by rules including no cohabitation with another partner, and cancellation of alimony on remarriage

Calculating Alimony

Alimony is based on a number of factors including:

  • length of marriage
  • income/ability to earn of each spouse
  • the lifestyle each is used to

Just a handful of states still support “fault” divorce, which is when one spouse seeks permanent dissolution of a marriage due to the other’s inability or unwillingness to be an equal partner, such as by abandonment, substance abuse, or having affairs. In those states where fault divorce is still possible, a court may use those factors in determining alimony by awarding the harmed spouse more of the marital assets or higher alimony.
In general, alimony is calculated by examining the couple’s income and ability to make money. When one partner earns significantly more than the other, whose income is limited by education or low potential for gainful employment, alimony will take that difference into account. The amount is generally a percentage of the difference in income. Child support is calculated separately.

Child Custody and Child Support

Child custody is a big issue in divorce because the disruption can have a significant impact on a child’s development and learning. Some states require that parents of minor (under age 18) children attend mandatory classes regarding handling divorce when children are involved.
The guiding principle for determining child custody and support is “the best interest of the child.” That means the court may rely on the testimony of expert witnesses who evaluate a child’s development, environment, and other factors to help make the decision. Some of the information that is gathered includes:

  • growth patterns
  • developmental milestones
  • performance in school
  • mental stability
  • the home environment

A court’s basic charge is to minimize disruption of children’s lives. That usually means awarding child support to the custodial parent and ensuring that a visitation schedule is acceptable to both parents. The actual dollar amount of child support depends on several factors including each parent’s ability to contribute, the family’s lifestyle (lessons, sports), and the amount of time the child spends with each parent