Brangelina Split: The Financial Costs of Divorce
Unless you’ve been living under a rock these days, you’ve heard the sad sad news that Hollywood’s it couple, Brad Pitt and Angelina Jolie (AKA Brangelina), are getting a divorce. While the rest of us mere mortals weep over the loss of such a magnificent couple, it got us thinking over here at WSS…..DIVORCE is expensive!
While divorce is not the most pleasant topic to write about, it is a reality in today’s world. 40% to 50% of all marriage in U.S end in divorce, so it’s important to understand how to deal with it and what it will cost you. (Everything had a price!)
A divorce between two incredibly famous people with a combined estimated net worth of $640 million dollars is probably a pretty difficult thing to get through.
Let’s call a spade a spade if Brangelina can’t make it, what hope do the rest of us have?
Divorce is difficult for anybody. It can have devastating consequences and can deplete you of your financial resources.
Here’s a look at the financial costs of divorce, and how you can save yourself if you can’t save your marriage:
Divorce can be financially straining. From attorney fees to court-filings, the expenses could balloon beyond proportion. The cost of divorce may vary from state to state. So when it comes to filing a divorce, it is important to decide where you plan to file for a divorce – at your primary state residence or multiple states? Picking one state over another can make a big difference on specific divorce-related issues, such as alimony, custody, assets division, and all associated expenses.
In the case of Brangelina, Angelina Jolie chose to use divorce lawyer Laura Wasser, who is no stranger to celebrity divorces (past clients include, Jennifer Garner, Tom Cruise, Kim Kardashian and Johnny Depp.) Wasser charges a whopping $25,000 to keep her on retainer on top of her $850 hourly fees.
YES, divorce is expensive!!!
Especially if you’re having a contested divorce. Meaning, you cannot agree on any of the divorce terms with your spouse. The issues could be asset division, alimony, child support, or child custody
A contested divorce is complicated and lengthy and of course expensive that could drag on and on, with neither sides agreeing to give in on divorce terms. Though hiring an attorney is more expensive, it is the best way to protect your interests in divorce.
However, there are cheaper options out there if you and you’re spouse can keep things friendly and opt for a non-contested divorce.
Some couples prefer mediation or arbitration as a less expensive way to divorce than hiring the services of a divorce attorney. It also keep the process “friendly,” especially when there are kids involved.
Divorce cost varies from a contested to non-contested one – $15,000 and $1,500, respectively – whereas complex, litigious divorces can cost anywhere around $50,000 and more.
Alimony & Child Support
Spousal support or the granting of alimony is calculated differently across the US states. Usually alimony is considered a temporary measure to help the less-advantaged spouse meet their expenses during separation.
In the case of Brangelina, Angelina is not seeking spousal support from Brad. She is however, looking for sole physical custody of their children. Something Brad is planning to fight her on.
There are several key determining factors in deciding alimony.
First important factor is the length of the marriage, which may vary from state to state. Typically, jurisdictions consider alimony if a couple has been married for a minimum period of 10 years.
Additional consideration are: the age of the spouse, job or employment status, income, and assets are some other factors that the court considers for spousal support.
While marital fault and the nature of marriage dissolution are crucial factors in awarding alimony in a few states, in the case of no fault divorce, alimony is not required.
One misconception about alimony is that it is awarded to women alone. But the fact is alimony may be requested by either party.
Though Jolie is not seeking child support from Pit, it’s important to understand how payment is decided and what percentage of income is taken into consideration.
When considering child support, it is important to know what both parents earn. Since child payment is determined by income, it is not the same everywhere and varies considerably. Estimates put the average annual child support payment due around $5,000.
‘Start Up’ Fees
Besides the cost of divorce and related arrangements, there are other expenses that divorcing parties usually face related to starting over, including moving costs, down payments for a new residence, child care fee, and asset replacement for those lost to the other spouse.
Shared Debt Responsibilities
While divorce requires asset distribution, the same is the case with some debts. Married couples are responsible to share debts. But how does the joint debt get divided? The couple will need to figure out what share of home mortgages or leases, automobile loans or leases, credit card debt, installment loans on appliances or home improvements, loans co-signed for children or others, and business or farm loans…..there’s a lot of debt to consider!
We don’t think Debt will be an issue in Jolie-Pitt case, but it is something that is important to understand. When you Marry someone, their debt becomes yours and vise versa.
Well, if you are a co-borrower or co-signer on a loan taken before divorce proceedings started, you are as much responsible to pay off debts as your former spouse. If one side defaults, the other has to pay – it’s as simple as that. Any missed payments could negatively affect your credit ratings, for most lenders are not sympathetic to your personal issues.
Of course, you may want to take legal recourse against the defaulting ex-spouse, but this would involve spend more time with attorneys.
One way out is to liquidate assets, selling whatever you owe money on, splitting the proceeds between the two of you, and part ways forever. It does make for a clean getaway and save you from future financial implications, even though it may not seem like the best time to sell.
Or another approach is to get a new loan in your name and pay off the previous debts in both of your names.
Divorce is a major life event that affects your finances considerably. As far as taxes are concerned, the distribution of assets between spouses is not considered a taxable event.
However, this doesn’t mean there are no tax considerations to think through during divorce. For example, if you are getting alimony, you have got to report it to IRS. On the other hand, the alimony paying spouse can deduct the amount on their tax return.
Child support is not taxable, nor is it deductible for the spouse paying for it.
Failure to plan for tax implications can be damaging. So which parent claims dependency exemption? If you have a divorce decree naming the custodial parent, then there is no confusion on this issue. In other cases, you are a custodial parent if your child stayed with you longer during the year compared to their stay with your ex-spouse. However, in some circumstances, the noncustodial parent can also claim dependency exemption if you can get the custodial parent sign a waiver, pledging they won’t claim the child.
You can claim the child as a dependent if you are the custodial parent. As the parent claiming the dependent exemption, you are eligible to claim other credits, including education credit, Child Tax Credit. However, this proposition won’t work if you can’t claim the exemption, even though you pay education bills of your child.
Division of Assets
This one can get complicated.
Wonder how Brangelina plan on splitting their Hollywood mansion or their castle Chateau Miraval in France. (YES, they own a castle)
Dividing assets during a divorce can be difficult and emotionally drenching, especially in the case of significant assets, including houses, brokerage accounts, retirement & pension plans, stock options, real estate, tax refunds, antiques, boats, and closely held businesses, among others. Deciding who gets what is a huge challenge. It is the state law that determines how assets are to be distributed among divorcing spouses. Law varies from state to state.
Many states have a provision called community property. Such laws consider most assets earned or acquired in the marriage as equally owned and thus they are to be divided equally.
Some other states are equitable distribution states. Equitable distribution does not necessarily mean equal division, but fair and equitable. Equitable Distribution states consider different factors, such as financial situation of each spouse.
If the couple has assets spread over different states, then divorce laws, divorce fee, and alimony conditions differ from state to state.
Unfortunately, most spouses are unaware of the consequences of taking out certain assets. The taxes can really add up. When it comes to assets division, it should not be done based on their current dollar value.
It is in your best interest to understand which assets look promising in the short run and long term. For this, it is important to have thorough understanding of the asset. You may want to consider such factors as cost basis, liquidity, and tax implications in the event of its sale.
Like any good celebrity couple, Brangelina singed an “iron clad” prenuptial agreement before trying the knot. As we’re not a celebrity gossip site, we won’t bore you with the details of their prenup, but it is important to understand the implications if the couple in question signed one before getting married.
Divorce procedure is pretty straightforward if the spouses have not had a prenuptial agreement. A prenup is a legal contract entered into by two people that intend to tie the knot with each other. Such contract includes a clear listing of individual assets, limit on spousal support, debt responsibility agreement, exclusive rights of partners on specific assets in the event of a divorce, and debt management.
Having a prenup can ease the tension and save time during divorce proceedings. But all is not well with having a prenuptial agreement, especially if one spouse chooses to contest the same. It may prolong the divorce process, and the court may have to look at certain factors to see if the agreement is enforceable. It is likely going to add up to attorney fee, as attorneys may need to obtain information from the couple’s pre-marriage days to learn about their understanding of the prenup process.
All in all, before you decide to write off your marriage, do not forget to calculate financial and emotional costs that may be too much to bear! Food for thought!
And now that Brangelina are history, we restore our faith in celebrity marriage by turning to the beautiful Blake Lively and Ryan Reynolds.
To Learn more about personal finance and how to manage costs of life, check out the WSS course: Managing My Life 101!