During a marriage, a husband and wife may have widely divergent income levels based on their careers. Perhaps one spouse stayed home with the children or worked part-time. Since income and assets are pooled in most situations, the expenses for childcare, extracurriculars, education, camp, and clothing may come from the shared money.
When that couple divorces, there may be alimony and/or child support paid by the higher earner, which seems to “level the playing field.” Expenses, by default, are presumed to be split fifty/fifty. But, what if one parent just can’t afford to cover the split of the cost of those extracurriculars?
Cicily Maton of Aequus Wealth Management Resources in Chicago suggests a number of strategies to deal with this issue, which can become personal and emotional.
Addressing the issue of income disparity and child-related expenses depends on the available assets. If there are sufficient assets, Maton suggests setting aside a pool of money for extraordinary expenses so neither side feels a reduction in lifestyle. Perhaps warring couples can find a way to put aside differences to focus on the welfare of the children.
Maton says the legal system may not end up being helpful so it’s preferred to negotiate outside the courtroom. Find alternatives and recognize that both sides may have some decrease in the former standard of living. Couples need to look at how they can provide for extra expenses. Perhaps if one spouse gets a bonus, a certain amount can be put into the pool to pay for camp and other expenses.
Couples need to recognize that both sides may have struggles, at least in the beginning, to maintain their lifestyle and support raising children. Sometimes grandparents may be willing to step in to fill in the gap on some expenses.
For higher net worth individuals, it’s important to look at all available options to come up with strategies that work, typically one during a divorce. Try to help shape the settlement with the support of a financial expert to the best deal, someone with an eye towards using available resources rather than using those resources to fight each other.
Middle-income couples probably have the most difficult situation because they are not high net worth but may have different expectations than someone in a lower income bracket before divorce.
Regardless of income level, it’s important, advises Maton, to try to introduce the idea that level of participation should not be 50/50 but in proportion to assets or income. “A vast disparity in resources may lead to the one with greater assets to have a greater degree of control and impact the ability to negotiate, which is why it’s critical to have professional assistance as early as possible when divorce is in the offing,” says Maton, “An expert can create a balance sheet, which both sides may be willing to accept.”
Dr. Marty Martin, Financial Psychologist at Aequus, says the underlying dynamic is the couple is not thinking but acting from the basis of former partner to partner rather than parent to child. Couples need to get out of the confliction role and into the parenting role. Parents divorce legally, romantically, and emotionally but not financially when it comes to children. Divorcing parents may set up a trust so they don’t need to keep coming back to rehash financial issues.
Martin says collaborative divorce and mediation are effective in helping the couple come up with mutually satisfying and more creative agreements. The assistance of a financial expert may also help couples focus on coming up with a reasonable solution. The bottom line, however is if the underlying dynamics are based on causing the other person pain and children are involved, the children will be collateral damage.