The Financial Impact of Divorce
We understand that going through a divorce is a lot to deal with. We have guided countless clients over the years through this tumultuous time. It is can be a stressful time for everyone involved and the issues can at first seem complex and daunting. How to divide the life you and your spouse built into two is a problem you may have never thought of until recently.
As you likely know, one of the main issues in a divorce will be a financial division between you and your spouse. You will have to divide all property and liabilities you gained during marriage. You may be owed child support or alimony; alternatively, you may have to pay child support or alimony. All of these financial issues are amplified by the wealth you and your spouse have accumulated during your marriage. With wealth comes a greater accumulation of assets, liabilities, and a standard of living—all of which must be accounted for in a divorce.
Identifying, quantifying, and dividing everything in your life can appear overwhelming at first but fear not, we can help! Our experienced attorney’s can tailor a plan to your individual needs and advise you at every step along the way. We have included a brief summary of the financial issues normally faced in divorce in the pages below. We encourage you to review the summary and to begin thinking about all that will be involved in your situation, then, please give us a call. While our summary will guide you through the basic issues, what is best for you will depend upon the exact details of your life and your marriage and only a licensed attorney has the experienced you need in such a sensitive time.
How Property is Divided in a Divorce?
In a divorce, your marital assets and liabilities will be divided. Your assets and liabilities can be divided in one of two ways: (1) you and your spouse can divide them on your own terms; or, (2) you can let the North Carolina courts divide them.
Dividing on your own terms: You and your spouse can agree before, during, or after your marriage upon how to distribute your marital property. You and your spouse can negotiate over who will take specific pieces of property and divide all property in a way that both sides believe is fair.
Let the courts divide: If you and your spouse cannot agree upon how to split your estate, the courts of North Carolina divide your property. When the court divides your property, while there is no guarantee that either you or your spouse will get any property in particular, the courts will generally divide your property equally.
The basic financial considerations are the same regardless of what route you end up pursuing.
What Property is divided in a Divorce?
Not all of the property that you and your spouse have will be divided in a divorce. Only your marital property will be divided in a divorce. You and your spouse will not have to divide your separate property.
Marital Property: The only property that will be divided in a divorce is property that was acquired by either you or your spouse during your marriage. Marital property includes assets or debts accrued by either one of you during the course of your marriage. The only property acquired during your marriage that will not be divided is property that can be defined as separate property.
Separate Property: All property acquired before or after your marriage will not be divided in a divorce. For instance, if you started a company before your marriage, your ownership percentage would not be subject to division by divorce. Furthermore, any property given only to you as a gift or through an inheritance is not divisible during divorce (even if this property is given to you during your marriage). In North Carolina, separate property can never be considered marital property.
Our next step will guide you through making a list of all of your and your spouse’s property holdings.
Identifying Your Assets
Making an accurate list of everything you own can be a difficult task for anyone. Wealth only amplifies the problem of identifying what you own because often wealth results in diverse investments and unique asset holdings. However, thoroughly identifying all of the assets you own is critical. We have created a list of assets to consider:
As you build your list, note when you acquired the asset and how you acquired the asset. Remember, only the property that was acquired during marriage and not given as a gift or inheritance can be divided in a divorce.
Considering all of those assets can be a daunting task; however, we are here to help you. An attorney can be a vital resource in determining what assets can be divided in a divorce. Furthermore, there may be property that your spouse has acquired during marriage that you are not aware of. Discovering this property can be a difficult task to navigate alone. It may be difficult to ensure that what they tell you about their property is accurate. An attorney can be a resource to help you elicit an accurate accounting of your spouse’s property.
Our next step will discuss identifying your liabilities.
Identifying your liabilities
Creating an accurate list of all of the debts you or your spouse incurred during your marriage is just as critical to the division of your financial assets as the identification of your assets. You and your spouse will have to balance all of your marital debts and assets between yourselves. Only by methodically accounting for both assets and liabilities can you hope to achieve an equitable division of your marital finances. When making a list of the debts of you and your spouse, consider the following:
As you build your list, note when you acquired the debt, the initial amount of the debt, and how much is presently owed. Remember, as with assets, only those debts that were accrued during marriage will be divided. All debts incurred before you were married will not be divided.
We encourage you to be as thorough as possible when building your list. We understand that debts can be a sensitive issue; however, if you fail to disclose a liability you may be solely responsible for the entirety of the debt.
Assessing Current Market Value of Assets
After you have made a list of all of your marital assets, you will need to value each asset. The value is determined by value of the asset on the date you and your spouse separated. The value is not determined by the purchase price of the asset.
Accountants and other professional evaluators vary in how they arrive in determining the value of an asset. The common methods that can be used for evaluating an asset are: comparing the asset to similar assets recently sold, evaluating cash flow potential of an asset, or the replacement cost of the asset. You should consider the value of the asset from all three perspectives when valuing your assets.
If you and your spouse own a business, the business will need to be valued as well. When valuing your business considered: (1) fixed assets such as cash, furniture, supplies, and equipment; (2) accounts receivable and value of work in progress; (3) the value of goodwill associated with your business; (4) liabilities of the business; and, (5) offers to buy or sell any part your business.
You may want to consider employing a professional appraiser to value an asset where you and your spouse have significantly different values for particular assets. If you and your spouse cannot come to an agreement on how to value each asset, the court will value an asset by what is reasonable.
Create a List of How to equally divide the Assets and Liabilities
Would you like more assets and can weather more of the marital liabilities? Would you like to have less debt and are okay with getting fewer assets? These are the types of questions you will have to consider after you have a complete list of your marital assets and liabilities and their values. You will need to make a list of all of the assets and liabilities that you want to keep and all of the assets and liabilities you are willing to distribute.
Negotiating the division of assets and liabilities can be a difficult task to tackle alone. There are many variables to consider and there may be a great deal of negotiating involved; however, you do not have to go through the division process alone. An attorney can be a great resource to help you in negotiating and provide guidance in this difficult time.
Other Financial Issues in Divorce
Child Support
If you have children under the age of 18, you may have to pay child support. In North Carolina, child support payments must be enough to pay for the needs of your child’s health, education, and maintain their standard of living until they are 18 years of age. How much you will pay in child support depends upon on much you and your spouse make each month.
If you and your spouse combine to make less than $25,000 per month, then the required child support payments are based around these guidelines. However, if you and your spouse combine to make more than $25,000 per month, there is no similar guidelines. The court will determine what the reasonable needs of the considering the size of your estate. While there is no mathematical approach to determining child support here, rest assured that the North Carolina courts generally follow The Three Pony Rule—no child needs three ponies; no child is entitled to decadence. If you and your spouse combine to make more than $25,000 per month, you should consult the experience of an attorney for the best prediction of what child support payments to expect.
Alimony
In addition to dividing assets and paying child support, you or your spouse may have to pay alimony. Your alimony obligation is dependent upon whether you are the “supporting spouse” or “dependent spouse.” Generally, the spouse who has brought the most money in during the marriage will be classified as the “supporting spouse” and the other spouse will be considered the “dependent spouse.”
The obligation of the supporting spouse to pay alimony is dependent upon the dependent spouse’s needs, physical condition, standard of living, and earning capabilities. You and your spouse can come to an agreement that details the amount and length of alimony payments or the court will decide the amount and duration of alimony to be paid.
One of the most important issues to consider in determining alimony obligations is whether you or your spouse had an affair during your marriage. If the supporting spouse had an extra-marital affair, then they must pay alimony. If the dependent spouse had an extra-marital affair, then they cannot collect alimony.
Alimony may be the financial issue that seems most uncertain. Will I owe alimony? How much will I owe and for how long? However, as with all of the areas we’ve discussed here today, we are here to help you. Let us use our years of experience handling these difficult situations, ease your burden, and give you peace of mind.
