Creating Financial Fairness in Divorce

“I just want what’s fair!” says every person going through divorce.
Couples generally agree that they want a fair outcome. Defining what fair looks like proves much more difficult.

The challenge is real. A recent poll found that finances cause one-third of divorces. If couples can’t agree on finances when married, it’s no wonder they struggle to agree in divorce.

Creating a working definition for “fair” proves key.

50-50 Split

Indiana law presumes a 50-50 split of the marital estate. The marital estate generally includes:

all the assets (house, bank accounts, investments, retirement accounts, etc.) and
all the debts (mortgage, student loans, credit card debt, other loans)
incurred by either spouse before or during the marriage—no matter whose name is attached.
Many people use this presumption as their definition of fair.

For spouses whose earning ability, retirement accounts, responsibility for children, and health is relatively equal—the presumption works well. For people who share a similar trajectory post-divorce, half the estate offers equal footing.

50-50 Outcome

While “splitting everything 50-50“sounds fair, most people actually want relatively equal lifestyles for both spouses moving forward. Because most spouses aren’t on a similar trajectory, splitting 50-50 rarely accomplishes this.

Most often, one spouse does well while the other struggles. Generally, the husband’s lifestyle increases by 30% while the wife’s decreases by 41%.

Significant disparity in earning capacity, employment history, retirement investments, education, and/or health can dramatically affect each spouse’s relative financial future.

When one spouse has primarily stayed home to care for children, maintain the house, and manage the every-day lives for the couple so the other could build a career–there is both actual financial loss and opportunity loss. The person just beginning rarely achieves the earning capacity of the spouse who actively built a career over the course of the marriage.

The older the person, the more significant the opportunity cost. While a 50-year-old may have education and ability, the challenge of getting hired looms large. More, there aren’t enough working years left to achieve earning equality.

Similar difficulties confront spouses who primarily care for children, who cope with significant health issues, or who have continually worked but whose earning capacity is significantly less than their spouse’s. The public school teacher will never earn what the neurosurgeon earns.

Achieving equality in outcome when such disparities exist requires dividing marital assets differently.

Vision-based approach

Conciliation-Mediation uses a vision-based approach to navigate financial decisions and create equity. Couples begin by completing a financial intake form that identifies all assets and debts (as in most divorces).

They also complete a budget form detailing their desired lifestyle and the resources needed moving forward. This budget offers insight into the expectations and obligations of each spouse post-divorce as well as indicating who pays what for the children.

Equipped with these concrete numbers, couples then work together to create a plan. Rather than focusing on a percentage split, they focus on how best to provide for their future lives from the resources they built together.

One spouse may need ready cash; the other may need more long-term investment to make up for the lack of retirement account. Both focus on how best to meet children’s needs—in everything from food, clothing, and shelter to sports camps, braces, and college. As the couple defines their expectations for daily life, they gain a clearer vision for how to use their resources to meet those expectations as closely as possible.

What is fair? Fairness comes when couples find a way to fund stability for both moving forward.

If you are considering divorce and have questions about the money, call 317-344-9740 or email info@TheResolutionCenterIndy.com. We look forward to serving you.

Tags: divorce finances, strategies for divorce