Commentary on fraud, scams, scandals, and court cases.

Divorce: Funding Sources for the Lifestyle

An important lifestyle consideration is the source of funding. Many families fund their lifestyle with one source of income, earned from their work. Other families have multiple sources of income that may include investments, trusts, debt, liquidation of assets or other sources.

The funding sources matter when examining the lifestyle and determining the standard of living for a number of reasons:

The sources may not be guaranteed in the future
The sources may be exhausted at some point in the future
It may not be reasonable to require the use of the sources to fund the lifestyle

For example, if the wage income of the parties did not fully fund the lifestyle during the marriage, and the parties incurred debt to maintain the lifestyle, the court may be reluctant to order that the same lifestyle be maintained after divorce. Courts often will not require one or both of the spouses to incur debt to maintain a lifestyle that arguably is (and was) beyond the means of the spouses.  Borrowing to fund the family’s lifestyle is also not sustainable. If spending continuously outpaces income, debt cannot be accumulated indefinitely.

Issues may also arise when expenses are funded by trusts, inheritances, or other sources that may not guarantee funding in the future. Such sources of funds are generally not unlimited, so the availability of those sources in the future is often questionable. For example, if assets have been liquidated to fund the family’s lifestyle, an argument can be made that it is not a sustainable source of funding. Eventually there will be no assets left to liquidate.

A lifestyle that is funded in part or whole by gifts or loans from friends or family is problematic as well. For example, consider a residence owned by the family of one of the spouses. The family has allowed the spouses to live in the home rent-free for the duration of the marriage. This is arguably a funding source, as the family is providing the value of the residence.  This “funding” could stop at any time, and that possibility must be considered when evaluating the standard of living.

Remember that the property divided may include a funding source. If the spouse receives investments or other property which produces income or cash flow, this will funds the lifestyle in part or full. The spouse’s need for support should be adjusted accordingly so as not to provide the spouse with a duplicate benefit in the divorce.

Leave a Reply