by Tom Klein

Created on: October 27, 2008

Financial Issues of Divorcing

The financial issues of divorce, though complicated, fall into three general categories: (1) the separation of the spouses' property, (2) the ongoing support of the non-wage earning or lower-wage earning spouse, and (3) the ongoing support of the minor children. These issues are not governed the same way in each state because the different states have different legal traditions in handling divorce; however, with respect to property separation, there are two main legal traditions in the United States: the equitable distribution (or common law) tradition and the community property tradition. Only nine states of the U.S. follow the community property model; the remainder are equitable distribution states. The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. It is worth bearing in mind that the legal rules of a state will apply unless the spouses agree otherwise, except for child support. In other words, the laws permit the spouses to agree to a separation of their financial lives as they see fit, but if they cannot agree the law provides a set of default rules that a judge can order so that the parties can separate their financial lives.

Separation of Property

In equitable distribution states the property of the spouses will be divided "equitably." This tradition gives a broad mandate to a court to fairly divide the property, and the judge takes into considerations fairness, the post-divorce financial condition of the spouses, and the economic and non-economic contributions of the spouses to the marriage. This model of distribution in force in 41 states makes the divorce outcomes hard to predict. Community property states provide that all property acquired during the marriage is owned by the community (both spouses own the property). It is the role of the court to separate this community property equally (that is 50%-50%). In these community property states, the court will order the community property to be allocated to each spouse so that an equal division in value will be made. Any property acquired before the marriage or during the marriage by gift or bequest is considered separate property and belongs to the spouse who received that property or owned it before marriage. There is a similar rule for debts community property debts are divided so each spouse bears one-half of the debts, and pre-marriage debts belong to the spouse whose debts those were.

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