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Alimony...Once More With Feeling

Understanding the intersection of human emotion and economic theory will help you serve your clients better as they navigate disagreements during marriage and during divorce.

Justin A. Reckers and Robert A. Simon, 08/15/2013

Psychological, financial, and legal professionals who work with clients going through the divorce process recognize the importance of assisting them to think strategically about financial decisions and how to avoid allowing emotions to unduly and inappropriately cloud their vision. Emotions readily and often inappropriately influence rational decision-making, and divorce evokes profound emotions that often de-rail economically rational decision-making in the midst of the upheaval.

Experience in practice as well as attention to the divorce literature results in more insight into the kinds of disagreements that lead couples to divorce in the first place. We now have research-derived empirical evidence that disagreements over financial matters are the leading cause of divorce across all socioeconomic levels in the United States. It turns out disparate values around money and the meaning attributed to money are more difficult to navigate than arguments about sex, household chores, child rearing, or offensive in-laws. More often than not, the disagreements had during marriage will spill over into divorce negotiations and possibly persist long after the judgment of dissolution is entered and spouses are officially divorced.

Understanding the intersection of human emotion and economic theory will help you, the advisor, to serve your clients better as they navigate disagreements during marriage and during divorce.

Alimony
Couples often make an economic decision to have one party postpone the development of their career in the interest of rearing the children at home. It saves day-care costs and hopefully allows hands-on parenting. The decision of who will be the stay-at-home parent is also an economic one based simply on comparative advantage. Whoever has a more stable job, a more promising career path, and/or and the ability to make more money is probably going to be the one working. The individual staying at home is likely to be the person whose income prospects are not as bright as the working spouse.

When the marriage ends this joint arrangement, interesting and complex things can happen. The non-working or stay-at-home party will probably find that he or she can no longer afford to remain out of the work force.  Thus, this parent must return to the labor market after being a stay-at-home parent.  

For many, this is a recipe for disaster. They may need to go back to college to retrain in order to find work or take a position working for minimum wage. On the other hand, for the spouse who has been working, there is often a feeling of being exploited. They have worked and earned an income. Because of this, they now are in the position of having to pay a portion of that income to their soon-to-be former spouse. If the working parent happens to be someone who owns their own business, they may also end up having to buy out their spouse's portion of the value of the business and support the spouse as well. No wonder many couples choose not to get divorced due to the negative financial consequences.

Enter alimony.

Alimony is a simple economic concept. It acts as an extension of the lifestyle that was enjoyed during marriage in order to protect individuals and families with disparate incomes. Alimony is not just for full-time homemakers. Working individuals are often awarded alimony in circumstances where their former spouse earns considerably more.

Justin A. Reckers, CFP, CDFA, AIF is director of financial planning at Pacific Wealth Management www.pacwealth.com and managing director of Pacific Divorce Management, LLC www.pacdivorce.com, in San Diego.

Robert A. Simon, Ph.D. www.dr-simon.com is a forensic psychologist, trial consultant, expert witness, and alternative dispute resolution specialist based in Del Mar, Calif.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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