Amicable Divorce During a Recession & High Inflation?

Divorce is now more difficult with inflation. Child support and alimony payments may automatically rise with inflation, but budgets for those numbers sometimes can’t.

Higher prices due to inflation have made child and spousal support disagreements increasingly difficult to resolve.  Alimony and child-support payments tied to the consumer-price index can be impacted by cost-of-living adjustments which in turn are blowing up family budgets.

As a result of the Federal Reserve’s efforts to stamp out inflation, mortgage rates doubled this year, making disputes over who gets to keep the house more contentious. Legal fees have also increased.

The United States Labor Department states that the costs of legal services overall has increased by 7.4% since September of last year. Yet divorcing couples were already paying $11,300 in attorney fees on average in 2019, according to a poll by Nolo Press. 

These rising costs and arguments over who should pay for them have generated a new and contentious layer of complexity. Previously, a divorce may have been settled in one or two mediation sessions.  Today, a divorce may take five or six sessions to settle. As divorces become more heated, divorce rates are expected to fall almost 9% in 2021 compared with 2019.

Fights over who gets the house heat up

A major point of dispute in divorces has always been who gets to keep the house.

Higher mortgage interest rates have changed how consumers view their current and future houses. If one spouse wants to buy out the other’s share in a home, that spouse often needs to refinance the mortgage.

Refinancing is much costlier than it was a year ago. The cost of keeping a home may make it less attractive to keep.

Putting a price on assets in a bear market is complicated. 

According to experts in wealth management, rising interest rates have made it more difficult than ever to divide investment accounts fairly.

An expert warns that if divorcing partners choose one account over another without fully knowing the holdings, they may end up losing money. One woman consented to take a portfolio of securities worth $2 million rather than the family home. She regretted her choice as the stock market fell. The husband maintained that the market decline wouldn’t have been his concern if the wife hadn’t delayed the divorce procedure.

Living together cheaply post-divorce

Some couples find it cheaper to live together after the divorce.

Lawyers and financial advisors usually advise that staying married is typically better for you financially (though not always for your mental and emotional well being). Many couples decide to cohabitate after their divorce because they cannot immediately afford to live alone. Instead of divorcing, they can maintain their family health insurance plan and submit a joint tax return thanks to postnuptial agreements or legal separation arrangements.

Nesting, in which divorcing parents rotate in and out of the family home, has become more popular. When a parent is “off duty,” they both share a neighboring apartment where they both reside.

This agreement, however, doesn’t always put an end to money disputes, and new ones could start, lawyers caution. For example, with rising supermarket prices, they may argue over leaving the fridge empty for the next nesting parent.

Not in Today’s Market

Amicable divorce? It’s probably a great goal that might actually work for both spouses but, unfortunately, not today. Not when today’s economy has fallen into “bear market” territory.

There’s no guarantee that an amicable settlement will put an end to money disputes since new ones could start, lawyers caution. While alimony and child support by law are required to cover living expenses, previous budgets at times may not keep up with inflation.