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Inflation may have unexpected consequences in a divorce

On Behalf of | Jan 16, 2023 | Divorce |

People in California are feeling the effects of inflation across all types of goods and services. Many are surprised, though, to learn how declining purchasing power can impact a divorce. High rates of inflation might change the way couples plan for divorce; the changing values of assets, liabilities and the dollar should at least be considered when it comes to property division, alimony, child support and the divorce settlement.

Inflation increases tangible asset value

Inflation is generally discussed in its negative aspects, but it can be a source of increased wealth for people who own certain kinds of assets. Real property and stock holdings, for example, are likely to increase in value during times of inflation. For that reason, divorcing couples should pay special attention to property division during inflationary periods. The family home is likely to be worth a lot more than it once was, and its value is likely to continue to increase for so long as inflation rates are high.

Inflation decreases the value of maintenance awards

On the other hand, maintenance awards like child support and alimony decrease in value as the currency is inflated. This is because maintenance awards are made in specified dollar amounts, and those dollars have less and less purchasing power as they are impacted by inflation. Spouses who expect to receive maintenance payments following the end of their marriage should examine not only the current value of the amounts offered but also the likely value of any such awards in the future, given the inflationary environment.

Adjusting a divorce settlement for inflation

It is not possible to fully protect yourself against the movements of the markets. There are steps that you can take, though, to make sure you’re better prepared. One wise idea is to include a cost-of-living adjustment as part of any maintenance award. With this, the amounts of maintenance payments will increase to reflect inflation of the currency.