Today, on Redhead Mom, I’m sharing a partnered guest post about property division and child support during divorce.
Divorce is not only an emotional transition but also a major financial one.
In 2023, provisional CDC data suggest that 672,502 divorces and annulments were finalized in the 45 states and the District of Columbia that report divorce statistics. These divorce numbers work out to 2.4 divorces per 1,000 people in those jurisdictions. This ratio of divorce has held steady over the last three years.
The two problems that couples usually have when getting divorced are property distribution and child support. These two aspects of divorce will influence both parties’ financial state in the future.
When parents separate or divorce, the financial support for children is usually one of the biggest legal matters to sort out. A child support lawyer assists parents with setting up, changing, enforcing, or even disputing child support orders. They are also responsible for safeguarding their legal rights and also keeping the child’s best interests in mind.
Let’s discuss the fundamentals of both property division and child support.
How courts divide property in a divorce
Marital and separate property constitute the first distinction in the property division process. Marital property comprises any assets and debts acquired by both spouses during the marriage irrespective of who owns the account or the title of the debt or assets.
Meanwhile, separate property covers assets one spouse owned before the marriage. It may include certain assets acquired during the marriage, such as inheritances and gifts given to one spouse individually. In many states, personal injury awards are treated as separate property.
It is only after the two classifications of properties are distinguished that the next step can take place. How both categories are treated depends heavily on the state where the divorce is filed.
There are a total of nine states that are associated with the legal community property distribution system. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, spouses share marital property, which is usually distributed equally between them. In the states of Arizona, Texas, and Wisconsin, the law provides that in some instances the marital property of the parties may be divided by the court in an equitable manner.
For instance, both spouses are legally required to provide complete and accurate financial records for all assets and debts in their names. Marital property includes anything purchased during the marriage, income earned by both spouses during the marriage, and debts acquired during the marriage. Sorting these things out may be difficult if you are not familiar with how property division works. According to a Santa Rosa property division lawyer, a skilled attorney can be useful in situations concerning the definition and division of assets, liabilities, and individual property during the divorce proceedings.
The remaining states follow equitable distribution. Under this distribution system, the court divides property fairly. An equitable distribution does not necessarily mean a 50-50 division of property. The court typically looks at both spouses’ income, marriage length, spousal contribution, and other statutory criteria.
Assets that are commonly undervalued or overlooked
Property disputes usually focus on factors that are less easy to value or to spot.
Pensions earned over the course of the marriage are marital property in most states. Because a pension may span years before and during the marriage, courts apply formulas to determine what share of the benefit is marital. Dividing that share requires a separate order: a Qualified Domestic Relations Order (QDRO).
A QDRO will require the plan administrator to split the funds without incurring any penalties for premature withdrawal. The U.S. Department of Labor has developed guidelines on the operation of QDRO within the framework of ERISA law.
Failure to obtain such an order will mean loss of access to the funds, which belong to the marital estate. If one or both spouses own businesses or equity in businesses, the question of business valuation will play a key role in property disputes.
Business valuation can be performed via income, market, and asset-based approaches. The difference between these methods could be very significant. For an accurate valuation, the involvement of a forensic accountant or certified business valuator may be necessary.
Leaving these assets unaddressed in a settlement agreement is a mistake that surfaces years later, when the accounts finally come due.
What courts consider when setting child support
Child support is not purely a matter of negotiation. Parents can reach an agreement, but courts review it against statutory guidelines and can reject an amount that falls short without good cause.
Each state comes up with its own child support guidelines, which typically adhere to the federal requirements set up and managed by the Office of Child Support Enforcement (OCSE).
Courts account for both parents’ gross income, the number of children, the custody and parenting time schedule, and the cost of health insurance. Courts also consider the parent who bears health insurance costs, childcare expenses that enable a parent to work, and existing obligations to children from prior relationships.
Underreporting or suppressing income before the determination of support can raise concerns, as courts and lawyers are aware of these tactics.
Why the tax treatment of each asset matters more than its face value
An apparently balanced arrangement can become unequal once you take taxes into account. A wife’s $200,000 in an ordinary brokerage account, for instance, will not be of the same due value as a husband’s $200,000 in a Roth IRA.
In the former case, there are built-in capital gains tax consequences with respect to appreciated property. In the latter case, qualified withdrawals from the Roth IRA are tax-free under 26 U.S.C. § 408A, so there are no such consequences.
This distinction is also the case with respect to the home that was purchased during the marriage. A spouse who retains possession of the property and eventually sells it will have to pay capital gains taxes on appreciation above the exclusion amounts set out in 26 U.S.C. § 121, whereas a spouse who received assets of equal value in cash would not.
Modifying child support after the divorce is final
Child support orders are not permanent.
Changes to child support may be requested by either parent if, for example, their financial situation changes significantly, there is a significant change in custody, or the needs of the child change.
The provisions of the Uniform Interstate Family Support Act (UIFSA) determine the manner in which support orders may be pursued and changed when the parents reside in separate U.S. states. A parent who loses a job, receives a significant raise, or experiences a major health event has grounds to seek modification.
The modification is not automatic. It requires a formal court petition, and support obligations continue at the existing amount until a new order is entered.
Falling behind on payments while waiting for a modification hearing does not reduce the arrears owed.
The financial decisions that last
Property division and child support are not paperwork problems.
They are financial decisions with consequences that extend years past the date the divorce is finalized. A retirement account improperly divided becomes someone’s problem at retirement.
A child support order based on underreported income becomes a contested modification case when the discrepancy surfaces.
Financial expertise earns its place in a complex divorce. A forensic accountant or valuation specialist reads the numbers the way an attorney reads the statute. In a contested case both readings matter.
The complexity of the financial aspect of divorce requires thorough preparation. Assuming things in this regard can be a costly mistake for parents.