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How Are Divorce Settlements Calculated?

There are several issues that need to be decided before a divorce is finalized. Some of these issues include:

  • Child custody
  • Child support
  • Marital assets and debts
  • Alimony (spousal maintenance)

What Is Included in a Divorce Settlement?

A divorce settlement agreement is a document where divorcing couples agree on what the terms of a divorce should look like. The agreement may cover several issues, including:

  • Custody
  • Visitation rights of the non-custodial parent
  • How to divide property, debt, and other finances
  • Whether or not spousal support is paid
  • Any other relevant issues

Marital and Separate Property

Before your assets can be divided, you have to determine whether a given property is marital property or separate property.

Marital property refers to items acquired during the marriage. These can be either assets or debts. Separate property, on the other hand, includes property acquired before the marriage. This could be through gifts, inheritance, or pension benefits.

State law determines how a judge might divide marital property during a divorce, or what they will look for before agreeing to your divorce settlement. In general, you will get to keep your separate property unless that property was somewhat commingled into marital property.

Division of Assets in Divorce: Calculation

Some couples may already have a prenuptial agreement that shows how their property should be divided post-divorce. If not, they will need to come up with a fair settlement acceptable to both.

A fair settlement should first identify marital and separate property and address only how marital property is divided.

You should also look at your state's laws on how property is divided. States usually follow one of two ways to divide the property: 50/50 (community property states) or through equitable distribution.

Community Property States

These states typically divide marital property 50/50 regardless of the status of either spouse. States that follow this approach are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Equitable Distribution States

The remaining states follow what is called equitable distribution. Equitable distribution means the judge will look at each case and determine what is fair. The judge considers a number of things are before reaching a decision. These include:

  • Earning capacity of the spouses
  • Financial resources and income potential of the spouses
  • Length of marriage
  • The spouse's separate property

You and your attorney should take into consideration the above factors when drafting a fair divorce settlement agreement. This property division worksheet can also provide guidance on how your property should be fairly divided.

Other Determinations in Your Divorce Settlement

Apart from the division of assets, a divorce settlement will also cover the following:

Custody and Visitation

A fair settlement agreement will ensure both parents are involved in the child's upbringing. Both parents will likely have equal custodial time, unless there are specific reasons why one parent should have more time with the child. You will also need to agree upon visiting/parenting time schedules, taking into account your schedules and your child's needs.

Child Support

Most states have a child support calculator that helps determine the amount of child support a parent gets. Usually, they take into account:

  • The income of the spouses
  • Who has physical custody of the child
  • Child care costs
  • Other out-of-pocket costs for the child

A divorce settlement agreement will also take the above into consideration and adjust the child support payments to be fair to both spouses.

Alimony

If one spouse depended financially on the other, alimony may be awarded. Courts look into different factors to see whether alimony should be awarded. These include:

  • Financial needs of the spouses
  • Education and employment of the receiving spouse
  • Mental or physical issues that may prevent the spouse from getting a job

Tips for Property Settlement Agreements

The following tips can be useful when you are negotiating a divorce settlement:

1. Consider Mediation

Mediation can save you thousands of dollars in attorney's fees and court fees. The mediation process will involve a neutral third-party mediator (usually a family law attorney). This attorney will help the couple reach an acceptable settlement agreement.

2. Get All the Financial Information

If you or your spouse are considering a divorce, make sure to gather all your financial information before starting a settlement discussion. Make copies of financial documents like bank accounts, mortgage payments, and retirement plans for future use.

3. Look at the Settlement Agreement Carefully

A settlement agreement is about compromise, but that does not mean you shouldn't get your fair share of the property. If you are confused about the terms of the settlement, it may be wise to have an attorney review it to make sure your rights are protected.

Divorce Settlement Checklist

A divorce settlement is not only about division of property. It also contains other crucial agreements that you need to follow after the divorce proceedings are finalized.

Use this checklist as a starter to determine what you should include in your settlement agreement:

Property Division

  • Does your agreement divide all of your marital real estate, including your family home?
  • Who will pay what debt? What will happen if one spouse doesn't pay their share of the agreement?
  • How will bank accounts and other financial assets be divided?
  • How will retirement accounts be divided?
  • Have you considered taxes on property?
  • Have you fully reviewed your financial situation? Are there any assets you may not have taken into account?
  • Did you properly value all property? Who is to pay for any professional valuations?

Alimony

  • How much alimony (if any) is to be paid?
  • When will payments begin?
  • How long will one spouse pay alimony to the other? What criteria need to be met before alimony ends?
  • Will one spouse continue to list the other on their health insurance? For how long?

Child Custody and Child Support

  • Is your agreement in your child's best interests?
  • Does it cover who will be with the children and when? What are the living arrangements going to look like?
  • Does the agreement spell out how holidays and summer will be handled? How about vacations?
  • Is child support spelled out clearly and in accordance with the law?
  • Who will pay for medical costs such as health insurance?
  • Who will pay for schooling?
  • Who will make decisions about schooling, healthcare, and religion?
  • What will happen if someone needs to move? How far away can they move to maintain custody arrangements?
  • Who will claim the child as a dependent?

General

  • Is there any part of your settlement agreement that is unclear to you?
  • If you are breaking up a small business, who will receive want? How will business assets and debts be divided? Will the business continue? If so, how will management look?

Additional Resources

Need Help on Your Divorce Settlement? Speak to an Attorney

There are a lot of complicated legal issues that come with a divorce. Drafting a divorce settlement that covers custody, child support, property division, and the like can be a very demanding task, especially if you and your spouse are not in agreement. Speaking to a divorce attorney may be a great place to start to get proper guidance.

Next Steps

Contact a qualified divorce attorney to make sure your rights are protected.

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