divorce settlements

The Impact of Inflation on Divorce

Inflation affects just about everyone. It can have an impact on everything from the cost of groceries to the price of a new car to the increased value of our home. One area that is often overlooked is the effect of inflation on divorce. Inflation can have a significant impact on the value of assets, maintenance payments, and large expenses associated with a divorce settlement.

One of the most significant impacts of inflation on divorce is the value of assets. Inflation can cause the value of assets to fluctuate significantly. In high-net-worth divorce cases, this can have a significant impact on the division of property. For example, if a couple has a significant amount of real estate holdings or investments, inflation can cause the value of those assets to fluctuate. This can complicate the division of assets and make it harder to arrive at a fair and equitable settlement.

Considerations for Inflation-Proofing Your Divorce

As inflation rates rise so can they impact the value of alimony payments made by one spouse to another, the lower-earning party should consider a Cost of Living Adjustment (COLA) clause. Building a COLA clause into a marital settlement agreement can be a tool to prevent the need to return to court to adjust support and give peace of mind to the spouse receiving support. Alternatively, a buyout of support that can be invested can also be a consideration. This allows the lower-earning party to work with a financial advisor to reduce tax implications and wisely invest the money for one’s future. A buyout also lends a level of protection for a downward modification of support should your spouse lose their job, become disabled, or have some other life-changing event affecting the other party’s ability to collect support.

Rising inflation often has a positive impact on asset valuation. Just as inflation raises the price of groceries and gas, it also raises the value of things you own. Be careful about giving up your interest in a home or investment for cash or some other deal. In the long run, the stock market historically goes up producing positive returns as does the value of real estate. Don’t just consider the short term but look at the possibility of strengthening your investment and/or retirement portfolio. Receiving an asset in divorce could potentially be more profitable in the long run than you originally thought. Consulting with a financial advisor along with your attorney to better understand the pros and cons is a worthy investment in tumultuous times.

Inflation can also have an impact on large expenses associated with divorce. For example, the cost of hiring attorneys and financial specialists may increase over time due to a changing economy. This can make it more difficult for individuals to afford the necessary services needed to properly evaluate finances for a divorce settlement. In some cases, inflation may also impact the ability of individuals to pay for large expenses associated with divorce, such as property taxes or mortgage payments. Although it may seem counterintuitive to spend money on these professionals, the guidance they can provide often will save you money in the long run. It allows you to better analyze all the “what if’s” to put you into the best financial position moving forward.

We Look at All Aspects of Divorce

At Buncher Law, we understand the impact of inflation on divorce. Our team has affiliations with a variety of other experienced professionals and specialists who understand the complexities of costs, asset valuation, and financial calculations.

Working with experienced attorneys and financial specialists to navigate these nuances and arrive at a fair and equitable settlement that takes inflation into account is just smart. Creating a divorce settlement is a complicated process. Having a Certified family law specialist, such as Senior managing partner Sven Buncher, can provide valuable guidance and support to individuals involved in high-net-worth divorce cases.

Posted in Divorce Settlement.