Unemployment & Divorce: The Financial Considerations

Divorce is undoubtedly a challenging period, and when coupled with a significant shift in employment, the financial and emotional pressure can be overwhelming. The impact of losing your source of income not only takes a personal toll on you and your former spouse, it also affects how crucial aspects of your divorce, such as property division, spousal maintenance, and child support obligations. Keep in mind that you definitely should seek legal guidance on this topic and this article is intended to explain general concepts that can be involved in the state of Colorado.

In this post, we explore factors to consider when facing unemployment or underemployment during the divorce process.

Understanding Underemployment & Unemployment

Underemployment refers to a situation where an individual voluntarily earns less than their full earning capacity, whether through part-time employment, choosing not to work outside the home or earning a wage well below their earning potential. 

In most instances of underemployment, an income will be "imputed" to the spouse based on their qualifications and earning potential. This imputed income is calculated including factors such as age, education level, previous work history, and marketable skills and any health issues to be considered. If parties can not agree on an income, a vocational assessment may be completed where a professional will conduct this analysis considering all factors including local employment landscape. This ensures that a fair and appropriate income is used for spousal support or child support calculations, even if the unemployed spouse's income is currently zero. The imputed income is what will be used in support calculations.

If unemployment is involuntary, such as a job loss, it is important to document your efforts and attempts in finding employment. Document items such as positions applied for, potential income range, job requirements, and dates of interviews. This information will show that you are actively and sincerely looking for work. If you are receiving unemployment benefits, you will need to report it as income.

Impact on Support Obligations & Overall Finances

The loss of employment or a deliberate decision to quit a job can significantly affect spousal and child support obligations. Be sure to work with your attorney to understand what factors the court will consider such as the financial circumstances of both parties, historical income, and present incomes, to calculate child support. 

Keep in mind that regardless of the legal consequences that a loss of income can  have on support, it can be financially devastating if a large amount of debt is incurred or assets liquidated.  Generally divorces are financially challenging enough therefore putting in every effort to prevent a large financial hole to dig out of will certainly pay off as you move forward. Efforts to minimize the potential negative impacts such as temporary part-time employment of a position below your earning capacity until a more permanent solution is found can make a big difference in the long run.

Emotional Stress

The emotional toll of job loss, combined with the stress of divorce, can create a challenging situation. Emotional strain may impact decision-making and the willingness for parties to compromise during negotiations, leading to prolonged and heated divorce proceedings with high legal fees.

Despite financial constraints, individuals facing divorce and unemployment are advised to maintain their expenses, including paying the minimum balance on debts. Employers often scrutinize financial histories, and overdue payments or bankruptcy could make future job opportunities difficult. Regardless of if you are or are not the spouse with job loss, it is important to discuss the dynamics of your situation closely with your attorney. Monitoring if and when strategies such as temporary support or establishing separate banking accounts would help protect you financially is essential. 

Navigating the intersection of unemployment and divorce requires careful consideration of financial implications, legal strategies, and resources to support your emotional well-being. Seeking guidance from a financial advisor can provide valuable insights and help navigate the complexities of this challenging period. At A.M. Financial, we offer a free consultation to help you learn more about our services and how they can support your needs.